in Latin America and the Caribbean ANTONIO PRADO DEPUTY EXECUTIVE - - PowerPoint PPT Presentation

ANTONIO PRADO

DEPUTY EXECUTIVE SECRETARY Seminario Internacional Papel do Estado no Século XXI: Desafíos para a Gestão Pública

Brasilia, 3 September 2015

A new State-market-society equation for development in Latin America and the Caribbean

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

“A new State architecture must be created that will allow the State to play its rightful role as leader of our countries' development strategies. By casting a critical eye on its historical performance, we should be able to define that role, give the State the proper tools and determine its precise place in conjunction with the market and the citizens, achieving an

• ptimum balance of this trilogy in the development dynamic.”

ECLAC (2010) Time for Equality

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Contents

• A crossroads and the complex international

context

• The features of the current

State – market –society (citizenry) equation

• Compacts for equality as a tool for building a

new equation

• The new State – market –society (citizenry)

equation

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The region is at a crossroads

• The region is facing an economic slowdown after

several boom years

• Not enough was done to increase productivity and

reduce equality

• Progress was achieved on the social front, but has come to

a standstill and the region still has the world’s worst income distribution and other inequalities

• There are environmental sustainability challenges as

regards moving towards low-carbon development paths

• Stable democracies, but new challenges
• Facing variable geometry routes towards integration

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The region is facing critical restraints

External

• Slowing international

trade

• End of commodity price

supercycle

• Financial volatility
• Great vulnerability to

climatic phenomena

• Middle-income trap

Endogenous

• Disjointed production structure
• Informal, low-productivity employment
• Little dynamic efficiency
• Economic growth slowing and reliant
• n consumption
• Investment rates are too low
• Stalled poverty reduction
• Weak natural resources and

environmental governance

• Shortage of good-quality public goods
• Weak institutions

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

A more complex context

• The global economy has grown less than expected. Within a year,

growth projections for 2015 have been lowered from 3.2% to 2.8%.

• Upturn in growth in the United States (above the initial estimate of

2.8% in 2015) with a positive impact in Mexico, Central America and the Caribbean through remittances, tourism and trade.

• Fiscal disequilibria and lack of competitiveness in the eurozone,

with high levels of unemployment and growth of just 1.6% in 2015, are undermining global trade.

• Slowdown in China from 9.2% in 2011, to 7.0% in 2015 with an

impact on natural-resources-exporting countries.

• Uncertainty over the timing of interest rate rise in the United States

and QE in Europe, which could generate more volatile financial conditions.

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Latin America and the Caribbean have seen growth slow since 2010

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

a Preliminary figures.

6,1

7,7

6,0 2,5 2,9 2,3 3,7 2,5 0,5 0,9 0,5 1 2 3 4 5 6 7 8 9 I II III IV I II III IV I II III IV I II III IV I II III IV I 2010 2011 2012 2013 2014 2015ᵃ

Latin America and the Caribbean: year-on-year GDP growth, 2010-2015a

(Percentages, on the basis of constant dollars at 2010 prices)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Poverty rates have fallen thanks to policies implemented over the past 10 years, but have stood still since 2012

Latin America and other world regions: Gini coefficient, around 2010

0.50 0.45 0.41 0.37 0.34 0.33 0.34

0.00 0.10 0.20 0.30 0.40 0.50 0.60

América Latina y el Caribe (18) Asia Oriental y el Pacífico (10) Asia Meridional (8) OCDE (22)

Latin America a/: poverty and indigence, 1990 – 2014 b/ (Percentages of the population)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of data from household surveys conducted in the respective countries. a/ Estimate for 19 countries (including Haiti). b/ Figures for 2014 are projections.

48.4 43.8 43.9 41.9 33.5 29.6 28.1 28.1 28.0 22.6 18.6 19.3 15.3 12.9 11.6 11.3 11.7 12.0 10 20 30 40 50 1990 1999 2002 2005 2008 2011 2012 2013 2014

Pobres Indigentes

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The crossroads calls for the redefinition of the State- market-society (citizens) equation

The past two decades have left lessons for the region in relation to the equation between State, market and society:

• The market is good at production, but bad at distribution.

Unregulated, it reproduces structures revolving around activities that are knowledge-unintensive and environmentally inefficient.

• The State can do much, but not everything.
• Society (citizens) demands transparency, voice,

participation and democracy.

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The market in the current State-market- society (citizens) equation

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The undeniable role of the private sector as the central agent in the market

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Economic Survey 2015.

a Public investment includes State enterprises. For Colombia, State enterprises form part of the decentralized sector, which includes public establishments, industrial

and commercial enterprises, mixed public-private firms, and autonomous universities.

Latin America (12 countries): proportion of gross fixed capital formation corresponding to public a and private investment, 2013 (Percentages, on the basis of local currency at constant prices)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Investment in R&D in the region is lower than in Europe

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Espacios de diálogo y cooperación productiva: el rol de las pymes, 2015.

Latin America European Union

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

12500 25000 37500 50000 62500 75000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 5000 10000 15000 20000 25000 30000

The region’s productivity levels are very low

Latin America and the Caribbean and other regions: GDP per employed person, by region, 1991-2012 (Dollars at constant 2005 prices)

Developed economies and European Union World Latin America and the Caribbean South-East Asia and the Pacific East Asia

Source: ECLAC, on the basis of data from the International Labour Organization (ILO).

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado Latin America (18 countries): GDP per employed person, around 2009 (Thousands of dollars)

Source: ECLAC, Structural Change for Equality: An Integrated Approach to Development, 2012.

Latin America (18 countries): indicators of structural heterogeneity, around 2009 (Percentages)

Structural heterogeneity: the factory of inequality

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Income distribution before taxes and transfers

Latin America and OECD countries: Gini index

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Panorama Fiscal de América Latina y el Caribe, 2015.

50.7 47.1 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 AL-16 Brasil Republica Dominicana Honduras Chile Panamá Argentina Colombia Costa Rica Paraguay México Perú Ecuador Nicaragua Uruguay El Salvador Venezuela (Bol. Rep. de) OCDE-25 Irlanda Portugal Reino Unido Grecia Estados Unidos Italia Alemania Francia Austria España Luxemburgo Bélgica Estonia Finlandia Polonia Australia Eslovenia República Checa Canadá Suecia República Eslovaca Países Bajos Noruega Dinamarca Islandia

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The State in the current State-market- society (citizens) equation

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

The State has a key role in correcting the market’s unequal outcomes ex post

Latin America and OECD countries: Gini index before and after taxes and transfers

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Fiscal Panorama of Latin America and the Caribbean 2015. Policy space and dilemmas.

50.7 47.1

• 6.1
• 37.6
• 60.0
• 40.0
• 20.0

0.0 20.0 40.0 60.0 80.0 AL-16 Brasil Republica Dominicana Honduras Chile Panamá Argentina Colombia Costa Rica Paraguay México Perú Ecuador Nicaragua Uruguay El Salvador Venezuela (Bol. Rep. de) OCDE-25 Irlanda Portugal Reino Unido Grecia Estados Unidos Italia Alemania Francia Austria España Luxemburgo Bélgica Estonia Finlandia Polonia Australia Eslovenia República Checa Canadá Suecia República Eslovaca Países Bajos Noruega Dinamarca Islandia

Variación porcentual Después de impuestos y transferencias Antes de impuestos y transferencias

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Tax collection is low and poorly implemented in the region

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Fiscal Panorama of Latin America and the Caribbean 2015. Policy space and dilemmas.

a Organization for Economic Cooperation and Development.

Selected regions and countries: structure of the tax burden, 2012-2013 (Percentages of GDP)

• Low tax burden in

most countries

• Regressive tax

structure

• High rates of evasion
• Widespread

exemptions

• Special treatment

for capital

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Several countries have made changes to income tax, mainly to tax capital income

• Argentina (2013)
• Chile (2014)
• Colombia (2012, 2014)
• Ecuador (2007, 2014)
• El Salvador (2009, 2011)
• Guatemala (2012)
• Honduras (2010, 2014)
• Mexico (2013)
• Nicaragua (2012)
• Panama (2009-2012)
• Paraguay (2012)
• Peru (2007, 2012, 2014)
• Dominican Republic (2012)
• Uruguay (2007, 2012-2013)
• Venezuela (Bolivarian Republic
• f) (2014)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), Fiscal Panorama of Latin America and the Caribbean 2015. Policy space and dilemmas.

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Tax revenues have risen from 16 to 21 GDP points, on average, since 2000, but they are still highly uneven

Tax revenues in Latin America, 2000 and 2013

(Percentages of GDP)

36 31 28 27 22 20 20 19 19 19 19 18 18 16 16 14 14 13

21 34

5 10 15 20 25 30 35 40

Brasil Argentina Bolivia Uruguay Costa Rica Chile Colombia Ecuador Nicaragua México Panamá Perú Honduras Paraguay El Salvador Venezuela Rep. Dominicana Guatemala AL-18 OCDE-34

2013 2000

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Prevent tax evasion and avoidance and control illicit flows

• Illicit financial flows represent a massive outflow of financial resources

from developing economies

• On average, in 2002-2011 illicit financial flows represented twice as much

as remittances and 14 times ODA in Latin America and the Caribbean

113.1 84.9 63.7 50.8 7.8

20 40 60 80 100 120 140

Flujos Ilícitos Inversión extranjera directa Flujos financieros privados Remesas ODA Illicit flows from Latin America and the Caribbean, average for 2002-2011 period (Billions of dollars)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

There are serious cracks and gaps in the region’s social protection systems

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted by the respective countries.

Latin America (14 countries): population living in households with no social security and receiving no pensions or welfare public transfers, by income quintile, 2009 (Percentages)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Investment is too weak to drive development

• In infrastructure
• In research, science

and innovation

• In development

banking: inclusive financing

• In environmentally

cleaner production matrices

Gross fixed capital formation, 1950-2010 (Percentages of GDP on the basis of dollars at constant 2005 prices)

23.1 18.0 18.5 17.9 20.1 22.9

10 15 20 25 30 35 40 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 América Latina Asia Oriental y el Pacífico

Source: Economic Commision for Latin America and the Caribbean (ECLAC), on the basis of official figures, and World Development Indicators.

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Persistent shortage of economic infrastructure

Electric power generation capacity, 1980-2012 (Megawatts per 1,000 inhabitants)

Source: Economic Commision for Latin America and the Caribbean (ECLAC), Economic Survey 2015.

Density of total road network, 2007 and 2012 (Kilometres per 100 km2)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Source: World Bank, http://info.worldbank.org/governance/wgi/index.aspx#reports

The region has a moderate quality of regulation

World: regulatory quality index, 2013

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Source: World Bank. http://info.worldbank.org/governance/wgi/index.aspx#reports

The region has little confidence in justice and compliance with laws and regulations

World: rule of law index, 2013

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Source: World Bank. http://info.worldbank.org/governance/wgi/index.aspx#reports

The region has little control of corruption

World: control of corruption index, 2013

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Citizens in the current State-market- society (citizens) equation

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Society (citizens) in the current equation

• Demand for transparency, accountability and participation
• Democracy in its three dimensions: social, economic and political
• Society not only as an object of public policies, but demanding

participation in policy definition and execution

• Citizens are engaged as bearers of rights of whose fulfilment the

State is guarantor

• This is expressed in: open government initiatives, open data,

Principle 10, participatory budgeting, the World Charter for the Right to the City, the Montréal Charter of Rights and Responsibilities, and the European Charter for the Safeguarding of Human Rights in the City, among many other participation instruments originating in civil society.

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Source: World Bank. http://info.worldbank.org/governance/wgi/index.aspx#reports

The region has lacklustre levels of participation and accountability

World: voice and accountability index, 2013

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Society (citizens) feeling unrepresented

Source: Latinobarómetro 2015.

• Q. Do you feel that the government represents you politically? Or the parliament/congress?

Latin America: sense of being represented by the government or parliament/congress, 2015 (Percentages)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Compacts for equality as a tool for building a new equation

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Politics and policymaking: the importance

• f compacts
• The development crossroads the region has reached calls for

revisiting relations between institutions and structures, involving a wide range of agents in the process

• A compact is a political tool for putting into place, within a

democratic framework, medium-term institutional policies and reforms with a strategic vision, with less risk that they will be reversed later

• A social compact is necessary at a time of changes in relations

between the State, the market and society, with social effervescence and the emergence of new forms of participation

• The citizenry is a party to the compact, as a full bearer of rights,

with the State acting as guarantor of those rights

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Compacts for equality

• New fiscal compacts are badly needed
• Trust and reciprocity between the State and citizens
• Consolidate public spending with a redistributive impact
• Agreements on origin and destination of resources for the State
• Transparency and accountability
• Agreements for better governance of natural resources: taking

advantage of windfall gains

• Investment in productivity: tradables (manufacturing with

innovation) and non-tradables (infrastructure)

• Coordination of macro, industrial, social and environmental policies
• Social consultation and consensus-building with accountability

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Reciprocity as a basis for a fiscal compact: a rights- based approach to improving spending quality

Source: CAF, 2011.

35

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Fiscal compact, stakeholders and reciprocity: tightening the link with the citizenry

• The CAF survey found that families in Latin America “would pay

more tax” if the Government did its job better (www.caf.com/investigacion)

– For eliminating corruption: 11.5% would pay more – For better health and education: 11.5% – For better public safety: 11.4% – For more protection for the poor: 9.2%

• Citizens do not like to pay tax, but when they do pay they feel they

have more right to demand responses from the authorities

– This is the opinion of 72.6% of households in Latin America

• The evidence shows a vicious circle between tax (especially direct

tax), accountability, reciprocity and the quality of public spending

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Recasting the industrial architecture

• Promote structural change mainstreaming environmental

sustainability

• Build new institutions to boost productivity on the basis of explicit

industrial policy

• Link low-productivity sectors with those already on the technology

frontier

• A comprehensive SME support strategy with inclusive financing

that links SMEs with more dynamic sectors

• A more prominent role for science and technology
• Mechanisms for mediation in socio-environmental conflicts
• Land use management and urban planning

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

Good links between social spending and structure help to boost social spending, productivity and equality

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Standardized World Income Inequality Database, version 4.0, September 2013; Organization for Economic Cooperation and Development (OECD), STAN Structural Analysis Database; and World Bank, World Development Indicators.

United States, 38 Australia, 33.4 Canadá, 32 Denmark, 25.2 Finland, 26

• Rep. of

Ireland, 33.1 New Zealand, 31.7 Sweden, 26.9

• Rep. of Korea, 31.1

Singapore, 44.8 Hong Kong (SAR of China), 43.1 Argentina, 44.5 Brazil, 54.7 Chile, 50.1 Colombia, 55.9 Costa Rica, 50.7 Ecuador, 49.3 Mexico, 47.2 Peru, 48.1 Uruguay, 45.3 Venezuela (Bol. Rep. of), 44.8

10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Labour productivity Social spending as a percentage of GDP

Labour productivity and social spending as a percentage of GDP, around 1990 and 2010, and inequality around 2010 (Constant dollars at 2005 prices and percentages)

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

A new State-market-society (citizens) equation

• The public arena as representing collective interests, not merely

public sector or national level concerns

• Political accords for a new social and intergenerational contract,

defining responsibilities, ensuring protection of rights and providing accountability systems

• Establishing a culture of collective development based on tolerance

for difference and diversity

• Strategic long-term vision built from within, promoting compacts

between industrial stakeholders

– Forums for dialogue between the public and private sectors and

public institutions to dovetail business strategies with development objectives

– Institutions and policies are needed to coordinate investment

with the local production fabric in sectors that are priorities for industrial modernization plans

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

A new equation needs long-term compacts

Strong role for the State

• Development

strategy

• Fiscal capacity
• Professional

management

• Transparency

and social participation

Market

• Regulated
• With proper

financing

• Coordination

for development strategy

Society (citizens)

• Stimulus for

stronger institutions

• Participation

and access to public policies

• Democracy and

social and economic policy

A new State-market-society equation for development in Latin America and the Caribbean

Antonio Prado

“The new development paradigm must be made to do everything possible to build a model of globalization that breeds greater collective awareness of global public goods, awakens democracy across the planet by affording a voice to the most diverse range of actors in the open concert of global governance, and provides excluded sectors with the tools needed to close gaps in capacity, citizens' rights and access to well-being. The new model of globalization must develop policies with a long-term vision --but start work on them as a matter of urgency-- in order to remain one step ahead of the climate, technological, demographic and cultural scenarios that current trends are now projecting.”

ECLAC (2010) Time for Equality.