natural resources

the Economy of the Extractive industries

Poverty and Social Equality
By FERnanDa WanDERlEy
iTS WoRTH A PoToSAN iDioM THAT USES THE

name of Bolivias famous colonial silvermining town as a way of saying its worth a fortuneis closely identified with the countrys past and its economic history. We Bolivians have always depended on some natural resource or other. The first was silver from the highlands of Potos, then tin and now natural gas. Throughout its history as a republic, Bolivia has constantly faced the difficulty of overcoming the model of revenue based on the extraction of non-renewable natural resources. This type of resource-dependent economy known as an enclave economy produces few jobs and is isolated from job-intensive industries that produce goods and services for the domestic market. To illustrate this strong dependence on natural resources, its worth mentioning that 80% of 2010 exports were natural resources; half of all public income comes from taxes on natural resources. Bolivia is a classic example of the limits of a primarily export-dependent economic model that has produced a mediocre average growth rate in the last six decades. Between 1950 and 2010, the Bolivian economy grew an average of 2.8% yearly, which translated to an annual per capita average of 0.5% growth, an extremely low number through which to overcome poverty and social inequality. Thus at the end of 2009, more than half (58%) of the Bolivian population was experiencing moderate poverty and an additional 32% lived in extreme poverty. The inequality between urban and rural areas continued to be significant, with 74% of the rural population in poverty, compared to only half of the urban population. To overcome these levels of poverty and inequality, the growth rate of the Bolivian economy would have to be at least 6%. That means Bolivias current

miners: a resource-dependent economy produces few jobs.

model of economic growth is making the country poorer in the long run. The heavy dependence on the extraction of just a few natural resources with low aggregate value creates a socioeconomic structure of precarious employment. Moreover, poverty alleviation strategies have been insufficient and

unsustainable because they depend on funding from the export sector, which suffers from the price volatility of the price of raw export materials. Most Bolivians survive by generating their own income in sectors of low productivity and are thus excluded from any social and laboral protection. Even
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bolivia: revolutions and beyond

within the employed population, only 20% has access to health insurance; the pension system covers only 27% of the employed population. This means that almost two-thirds of the Bolivian population is highly vulnerable, eking out its existence in the informal sector. Studies like Jean Imbs and Romain Wacziargs Stages of Diversification as Self-Discovery in American Economic Review, March 2003, show that countries that export a diversity of products have

tion in public enterprises and by channeling external aid to subsidize the private sector. However, this objective was not reached in Bolivia. Growth continued to be propelled by the export of three productstin, oil and natural gas, all of them controlled by the public sector and strongly dependent on world market conditions and the availability of international loans. Loans granted during this period were destined to finance public sector spending and export diversification

None of Bolivias development modelspast or presenthave paved the road to economic transformation and diversification.
higher rates of per capita growth. Similarly, other works illustrate that countries grow the most quickly when they export products that are part of the export basket of the countries with the highest per capita incomes. (Dani Rodrik, Industrial Policy for the Twenty-First Century, Kennedy School of Government working paper, 2004, and Ricardo Hausman, J. Hwang and Danu Rodrik, What You Export Matters in Journal of Economic Growth, no. 12, 2007). This begs the question of why Bolivia has not been able to transform its production to stimulate an economic takeoff and sustainable increase in social welfare, while similar countries have managed to advance toward this goal. We will explore the principal limitations of the institutional and political architecture behind the development models implemented in the past sixty years in Bolivia: state capitalism (1952-1985), neoliberalism (19852005) and post-neoliberalism (20062011). Until now, none of these models have managed to sustain a transformation of Bolivias productive model and accompanying improvement in social welfare. State capitalism focuses on producing a diversity of goods and services while consolidating a national industrial base in two ways: through direct state participa52 ReVista
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projects, some with successful outcomes such as the sale of natural gas to Argentina and the soy agroindustry. However, a great part of these resources were not invested in the proposed targets nor were they returned, meaning that the state assumed the subsequent debt. As a result, the majority of the production activities were begun and executed with state sup-

port in uncompetitive and inefficient circumstances (Juan Antonio Morales, Bolivian Trade and Development 19521987, working paper, 1988). During this period, social welfare policies sought to cover the entire population, but in practice only reached a reduced number of formally employed workers. The majority of workers and their families, surviving in the informal sector, were protected only through their family networks and their own capacity to generate income. State social benefits were extended only to a select group of workers, particularly public employees. In 1985, the pendulum of the economy swung back toward a liberal model. Policy makers bet on the market and minimizing the importance of industrial policies to promote national production and diversification. The hope was that liberalization of the markets and privatization of public enterprises would foster conditions to make the economy more dynamic and generate employment, thus overcoming poverty and social inequality. Although some macroeconomic and financial reforms did take place, the state prioritized reforms in capital-intensive sectors such as hydrocarbons, telecom-

a worker processes natural resources, an important part of Bolivias economy.

PHOTO BY ANTONIO SUREz, TSUAREzBOLIVIA@YAHOO.COM/ BOLIVIANPHOTO.BLOGSPOT.COM

natural resources

munications, and electricity, with aggressive policies designed to attract foreign investment. No consistent industrial policies were articulated for other laborintensive sectors such as the agriculture and livestock industry, food processing and the nascent Bolivian textile industry. These structural reforms inaugurated Bolivias gas era, a period characterized by greater economic dependence on this natural resource and insufficient policies for the development of private sector production that generates employment. The result was that more people worked in the informal sector in activities such as contraband, coca leaf production, commerce and retail activities with low productivity. At the same time and without coordination with economic policies, the state promoted social policies to give the population access to public services in education, health, and other programs aimed at the poorest sectors through social investment funds. Although poverty measured by the satisfaction of basic needs decreased, poverty measured by income actually increased and social inequality remained the same. The third period, post-neoliberalism, began in 2006 with President Evo Morales government when soaring prices of raw materials had created a promising international context for exporters. There was much expectation at the beginning of his term that he would use the increased revenue to promote production in non-traditional sectors that employ most Bolivian workers, and thus overcome the export model of exclusive dependence on hydrocarbon income. The model was based on concepts opposed to neoliberalism. Among these were the return to a more active state role in the economy and the recognition of juridical, political, and economic plurality. Although these ideas constituted a new and promising conceptional frame of reference, in practice rigid and opposing visions about the role of the state and the market prevailed. The excess of ideologydriven thinkingnow from the left about alternatives to the capitalist system

did not contribute to the development of a strategic vision of productive transformation and diversification of exports. One of the main fallacies of the principled bases for President Morales new model is the conviction that state planning should and can act unilaterally as a guiding force in economic development. There was no attempt to forge a publicprivate coordination; no integration of policies of technological development and innovation; no strengthening of the management of economic units; no information dissemination and training; and lack of support for forming associations to overcome the weakness of private coordination in the Bolivian economic structure. Moreover, the macroeconomic policies of the post-neoliberal period maintained the fiscal orientation of the neoliberal period, to the detriment of a productive vision. The concept of stability restricted to inflation control and the compartmentalized view of the microeconomy and the macroeconomy still persist. Actions to promote the relationship between both dimensions of the economy never got off the ground, nor was there promotion of a macroeconomic environment favorable to private investment. During this period, the Morales government concentrated its efforts on reforming the management of hydrocarbons under the model of nationalization. Although the levels of tax collection have been unprecedented in the past few years, the ambiguities and inconsistencies of this model have led to a slowdown in private investment, as well as a significant decrease in the proven reserves of natural gas and, consequently, of production. Thus, the sustainability of hydrocarbon production is not secure and might not ensure an adequate supply of energy for the country and an important flow of income for the state in the long run. At the same time, in spite of its goals of overcoming an assistance-oriented vision of social policies, the government has continued with programs and projects focused on populations with the greatest degree of social exclusion and has broadened policies of direct money transfers

through different types of vouchers and temporary employment programs. The exaggerated emphasis on natural resources has deepened the social struggle over income distribution, once more turning attention away from the policies that would lead to transform Bolivias productive model and economythe same policies that would establish a financial mechanism for domestic income distribution, thus softening the dependence on an inherently volatile surplus and the risks of relying on a rentier and corporatist culture, historically marked by clientelistic and corporatist relations between the state and society. We can only conclude that none of the development models implemented in Bolivia have managed to integrate a vision of a complementary relationship between market and state that would pave the road to economic transformation and diversification. The result is the absence of intrinsic and sustained policies for improved continuation of production chains, and an increase in productivity and technological development. If we Bolivians do not widen our economic base and stimulate coordination between economic and social policies, we will never reach our goal of overcoming poverty and social inequality. We will remain subject to our dependence on natural resources. The label of Its worth a Potos, will stay with us. Fernanda Wanderley is the Associate Director of Graduate Research in Development Sciences at the Universidad Mayor de San Andrs (CIDES-UMSA), La Paz, Bolivia. She holds a doctorate in sociology from Columbia University. She has written many articles, including Beyond Gas: Between the Narrow-Based and Broad-Based Economy in Unresolved Tensions Bolivia Past and Present (eds. John Crabtree and Laurence Whitehead, University of Pittsburgh Press, 2008) and Between Reform and Inertia: Bolivias Employment and Social Protection Policies over the Past 20 Years in International Labor Review, vol. 148, 3, 2009.
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