By Sebastián Nieto-Parra, Mario Pezzini and Juan Vázquez, OECD Development Centre
This blog is part of an ongoing series evaluating various facets
of Development in Transition
Until recently, rising levels of citizen dissatisfaction with public services and institutions in Latin America might have merely been pictured as an upward line in a graph. However, it seems to have reached a breaking point. Growing social discontent has boiled over into protests across several Latin American countries over the past weeks. While these protests are complex and multifaceted, understanding the underlying causes is essential to defining policy priorities that may help address the structural sources of discontent.
GDP growth is not alone in driving social unrest, as protests have not necessarily taken place in countries with the lowest growth rates or at times of lower economic dynamism, like the 2008 crisis. Furthermore, income gradually ‘delinks’ from well-being outcomes, as countries move up the income ladder. This has clearly been the case for most Latin American countries since the 2000s (OECD et al., 2019a).
A multidimensional approach to well-being is urgently needed in Latin America today. Citizen well-being is shaped by a broad range of factors, including quantitative and subjective indicators. Perceptions of the quality of public goods and jobs and safety or sense of belonging, are some examples. In addition, the expansion of the middle class and a more interconnected world in the digital era have also brought about new social preferences. Among others, growing demands for the provision of better quality global public goods, including environmental protection. Citizens compare social and wellbeing indicators not only with what their parents used to have, but also with their peers – in terms of age or gender for instance – at national but also international levels.
The development traps underlying social discontent
A number of structural challenges can be considered as drivers of social discontent, due to the negative impact they have on citizens’ prospects of well-being. These persisting “development traps” fuel vicious circles of self-reinforcing dynamics that limit the capacity to transition towards greater development (Figure 1; OECD et al, 2019a).
For example, the institutional trap is particularly pressing today. Despite efforts to improve, public institutions are failing to fully respond to citizens’ increasing demands, and in turn, distrust and low satisfaction are deepening. From 2006 to 2018, the share of population in Latin America satisfied with quality of healthcare services fell from 57% to 42%, well below the OECD average of around 70%. Likewise, only 25% of the population has confidence in their national government. In this context, citizens see less value in fulfilling their social obligations, such as paying taxes. “Tax morale” has been declining, and 53% of the population justified not paying taxes in 2016, compared to 46% in 2011. This, in turn, makes it difficult to raise tax revenues, ultimately limiting the capacity to finance better public services and respond to rising social demands. Despite heterogeneity across countries, tax revenues in Latin America and the Caribbean – 22.8% of GDP – remain well below the OECD figure of 34.3% of GDP (OECD et al., 2019b).
Figure 1. Development traps in Latin America
Source: OECD et al. (2019a), Latin American Economic Outlook 2019: Development in Transition, OECD Publishing, Paris, https://doi.org/10.1787/g2g9ff18-en.
The social vulnerability trap is cause and consequence of high levels of informality. Along with the expansion of the middle class, the number of people living in vulnerable conditions has grown to represent 40% of the population. These individuals generally have informal jobs, with low and unstable income and no social protection. These constraints limit their ability to invest in their human capital or in a dynamic entrepreneurial activity. As a result, they remain trapped in low-productivity, with access to only low-quality jobs. These conditions put them at risk of slipping back into poverty if faced with a negative economic shock, health issues, old age and even a family event like a divorce. Following a decade of decline, poverty has stagnated and even increased, with estimates showing that 27 million people have fallen into poverty from 2014 to 2019 (ECLAC, 2019).
The productivity trap involves the entire structure of the economy. Exports in many LAC countries are biased towards primary sectors with low levels of sophistication and low-quality job creation. This is often to the detriment of the manufacturing sector, which tends to get squeezed. Dependence on the extractive industries tends to further attract resources (both financial and technical) away from more job-intensive manufacturing, again with direct implications on diversification and quality of jobs. Finally, micro, small and medium-sized enterprises (MSMEs) are often dispersed and disconnected from each other. This makes it difficult to specialize and move towards higher added-value segments. This is a deterrent to the creation of formal jobs, with particular incidence in specific regions within countries. These MSMEs also face barriers to innovation, and productivity growth given the limited access to good-quality local services and resources (e.g. logistics, accounting services, skills, quality control, credit, information on market trends). The accumulation of these factors pushes MSMEs to operate in the informal sector. In all, these interrelated dynamics tend to perpetuate an economic structure of low productivity and low quality-job creation, with persistent gaps between formal and informal workers, and between “the haves and the have nots”.
Rethinking policy-making to improve people’s well-being
Recent social discontent highlights the need to better integrate the multidimensional nature of citizens’ well-being in the policy-making process and to develop better co-ordinated policy responses. So how can governments move forward to regain their citizens’ trust and respond to their demands and aspirations?
Policy responses are oftentimes sectoral and appear disconnected, in the eyes of the population, from a broader and multidimensional vision of well-being. It is therefore key to build strong narratives for development that make sense to citizens and provide a strategic and encouraging vision towards progress. National development plans have proliferated across Latin American countries. However, why do citizens usually feel disconnected from these strategic objectives? What can be done to empower the population and create a shared understanding of development?
Some more specific factors to take into consideration are the following:
– First, it is crucial to give voice to the people by strengthening mechanisms for dialogue among all stakeholders in planning. The lack of trust in institutions and inclusivity makes it especially difficult to involve citizens in co-designing certain structural reforms, such as increasing tax revenues to finance more and better public services. Populism is a major risk in this context of discontent, as it can lead to the adoption of temporary measures to gain the immediate support of citizens. Although unsustainable in the long-term, these measures can even become permanent. Therefore, to respond to citizens’ most fundamental demands, a more inclusive approach to the political economy of reform is necessary, particularly in the early stages of the reform life cycle (Dayton-Johnson et al., 2011).
– Second, resetting objectives on the base of well-being indicators, and not just GDP, is an important element of the policy-making process. Development strategies should integrate more robust analytical tools to grasp the multidimensional nature of well-being. More sophisticated and adapted measures of well-being are critical to truly respond to people’s growing aspirations. Official documents should focus on and clearly communicate the scope and well-being related benefits of proposed reforms to their citizens, to avoid misunderstandings on the impact they might have on people’s quality of life. To develop and better use well-being indicators in national strategies, the European Union, the OECD and its Development Centre, and ECLAC are working together on the “Metrics for Policies for Well-being and Sustainable Development in Latin America and the Caribbean” project, within the Development in Transition Facility.
– Third, more can be done with less, and the scope is broad to improve the impact of public resources on citizens’ lives by making public spending more inclusive, effective and transparent. The use of innovative tools such as digital technologies and big data will be critical to foster transparency and restore trust in public institutions, but it can also be a powerful tool to improve spending by better understanding citizens’ demands (Montoya et al., forthcoming).
Dayton-Johnson, J., J. Londono and S. Nieto Parra (2011), “The process of reform in Latin America: A review essay”, OECD Development Centre Working Papers, No. 304, OECD Publishing, Paris, www.oecd-ilibrary.org/development/the-process-of-reform-in-latin-america_5kg3mkvfcjxv-en
Montoya, N. S. Nieto-Parra, R. Orozco and J. Vázquez-Zamora (forthcoming), “In govt. we trust? Using Google data to understand governments’ approval in Latin America”, OECD Development Centre Working Papers, OECD Publishing, Paris.
ECLAC (2019), Social Panorama of Latin America 2019, (LC/PUB.2019/22-P/Re v.1), Santiago, 2019, https://www.cepal.org/en/publications/44989-social-panorama-latin-america-2019
OECD et al. (2019a), Latin American Economic Outlook 2019: Development in Transition, OECD Publishing, Paris, https://doi.org/10.1787/g2g9ff18-en.
OECD et al. (2019b), Revenue Statistics in Latin America and the Caribbean 2019, OECD Publishing, Paris, https://doi.org/10.1787/25666b8d-en-es.