"Bottom-up" Development in Post-neoliberal Latin America

May 2014
Latin America, May, 07 2014 - Milford Bateman suggests that new forms of industrial policy are (re)emerging, including at the local level, and are beginning to transform the continent’s industrial structure in a positive direction.

Latin America is undergoing something of an industrial policy revolution of late. Having ditched its destructive neoliberal policies from 2000 onwards, and then having seen the supposed efficient-market foundations of the entire neoliberal model effectively blown apart by the global financial crash of 2008, it was inevitable that a major policy change was in order. Yet, today, the speed with which a new industrial policy movement is taking place has surprised many observers. These new policies are being informed both by important prior experience in Latin America, principally the import substitution industrialization (ISI) policy period (1950-1980), as well as by significant ‘best practices’ from elsewhere, notably from China, Italy, the Republic of Korea, Scandinavia and especially from Latin America’s own star performer, Brazil.

Perhaps the most interesting aspect of the rebirth of industrial policy in Latin America, however, is that there is a very definite focus on the specifically local aspects of industrial policy formulation and implementation. This specific focus arises for two reasons. First, many governments in Latin America have deliberately chosen to decentralize many of their activities and operations. Local services provision is not only more cost-effective. It also serves to promote greater accountability and transparency in governance. Decentralization has also been seen as a way of more directly involving ethnic and social groups long marginalized under authoritarian rule.

Second, there is also the growing acceptance that the continent’s de facto local economic policy model for many years – microfinance – has been a disaster. The vast microfinance industry has absorbed scarce financial flows which were then overwhelmingly recycled into millions of the very simplest forms of informal ‘no-growth’ retail and street trade, handicrafts and petty services. At the same time, growth-oriented small and medium-sized enterprises (SMEs) were increasingly ‘crowded out’ of the market for financial support, while also struggling to compete against rafts of informal microenterprises that pay no tax, offer bare survival wages and have no interest in ensuring decent health and safety conditions at work. The overarching result has been the de-industrialization, informalization and primitivization of Latin America’s local economies. Even the neoliberal-oriented Inter-American Development Bank now laments the fact that Latin America’s financial system channelled so much of the continent’s scarce financial resources into informal microenterprises and self-employment ventures, a market-driven process it now concedes achieved nothing more than “the pulverisation of economic activity into millions of tiny enterprises with low productivity”.

Ecuador is perhaps the most obvious example of the new counter-trend towards pro-active local industrial policy. Its central government under President Correa has made a determined effort to devolve power and resources down to local governments, and so much closer to poor and marginalized people. Local governments are now the centre of much pro-active industrial development activity. One policy common to many parts of Ecuador is to establish farmer-owned cooperatives linked to new state-of-the-art food processing units. These programmes not only help to ensure quality affordable outputs for local consumers, the use of appropriate environmentally sensitive packaging and phytosanitary certification to enable export, but also ensure that the bulk of the value added generated goes back down to the basic producers, not up to rich intermediaries or out to shareholders of multinational corporations.

In Brazil, we are all aware of the impressive track record of the state development bank, BNDES. But it needs to be remembered that BNDES also has a very important role to play in local industrial development, through its local branches and programmes. In fact, BNDES has long promoted many new innovative SMEs through its loan programmes. It also increasingly promotes SME suppliers through the local content agreements that it attaches to its loans to larger companies. A new generation of community development banks are also helping to support sustainable new businesses in many communities. Funding comes from higher levels of government in order to support the poorest regions and localities that otherwise might not be able mobilize as much as they need locally in order to do a good job.

It must also be remembered that Chile’s long-held status as the ‘role model’ for neoliberal policies is based on a myth. The Chilean government actually established a very impressive range of ‘interventionist’ local/regional state-led infrastructures and, moreover, generously financed these institutions through the very heterodox policy of retaining state ownership of the world’s most profitable copper facility, Codelco. Thus, both Fundación Chile and CORFO (Corporación de Fomento de la Producción de Chile) were able to patiently develop and finance important new industrial enterprises and enterprise clusters, and even entire agro-industrial sectors from scratch, the most famous examples being farmed salmon and soft fruits. Most recently, the Chilean government has established an innovation fund to support SMEs that is managed locally and is directly financed by its revenues from Codelco.

Leftist governments in Bolivia and Venezuela have also developed innovative local industrial development policies, notably involving the establishment of cooperatives. The aim here has been to use oil and gas industry revenues to establish ‘local production for local consumption’ measures that directly serve poor communities for the very first time. Thanks to traditionally weak bureaucratic capacities and resistance from the entrenched private sector, many problems remain. But these new forms of local industrial development policy, allied to industrial democracy-building measures, have nevertheless demonstrated much potential to respond to genuine need, while also promoting greater equality and social justice.

Finally, even in traditionally centralized and neoliberal-oriented Colombia, local governments and provinces were allowed to experiment with novel forms of industrial policy. The city of Medellín, for example, has pioneered many new forms of engagement with and support for local industry and the community, helping to create many new industries and service sectors as its traditional textile industry declined. Crucially, the Municipality of Medellín was willing to take a leaf out of Chile’s book and retain ownership of Empresas Públicas de Medellín (EPM), the main utilities provider in the province of Antioquia, resulting in 30% of EPM’s profit being channelled into the Municipality’s budget. This largesse was creatively used to finance a wide variety of programmes that upgraded the region’s industrial and service base, as well as to (re)establish Medellín as one of Latin America’s most exciting tourist destinations.

Latin America has embarked on a new voyage of discovery. New forms of industrial policy are (re)emerging, including at the local level, which are beginning to transform the industrial structure in a very positive direction. There are many optimistic portents to suggest that we might be seeing the start of a new, much more positive, ‘bottom-up’ development episode in Latin America’s economic history.

Source : Making It

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