See, for example, Chapter 5 of World Bank Earlier studies documenting the importance of trade openness for growth include Sachs and Warner , and Frankel and Romer For example, Kaufmann and others provide some evidence linking economic development to the presence of institutions that promote the rule of law. Burki and Perry and Rodrik are among those who argue that the Washington Consensus did not sufficiently emphasize the development of institutions.
On the lack of specific advice on creating the proper institutional framework, see, for example, Rodrik On the benefits of central bank independence, see, for example, Alesina and Summers and Cukierman and others Research by Goldin and Katz emphasizes the importance of the U. The state-supported university system and the educational subsidies of the G.
Bill boosted educational attainment and growth after World War II. See, for example, Altschuler and Blumin It should be noted that increasing the share of the public budget devoted to education was advocated by the Washington Consensus. In such cases we call them "natural monopolies. This idea whereby economies of scale can be continuously exploited by the sharing of ideas and "learning-by-doing" is one source of what is called "endogenous growth" in the economics literature. See, for example, Romer and Lucas While the idea of "natural monopolies" was well understood at the time the Washington Consensus came out, the "endogenous growth" literature was in its infancy.
See, for example, Barro See Oster and Millet Rodrik , for example, discusses China's case. After , ethanol subsidies in Brazil were removed, but other forms of indirect government support were maintained. Recent research by Eichengreen and others draws on cross-country evidence to show that the pace of a country's economic growth tends to slow once its level of real per capita income crosses a certain threshold. References Alesina, Alberto, and Lawrence H. Summers Altschuler, Glenn C. Blumin New York: Oxford University Press. Barro, Robert J.
Economic Growth, 2nd edition. Cambridge, Mass. Washington: World Bank, May. Burki, Shahid J. Beyond the Washington Consensus: Institutions Matter. Washington: World Bank. Cukierman, Alex, Geoffrey P. Miller, and Bilin Neyapti Durlauf, S. Johnson, and J. Temple Aghion and S. Durlauf, eds. Amsterdam: Elsevier. Easterly, William, and Ross Levine Easterly, William The Elusive Quest for Growth. Fischer, Stanley Frankel, Jeffrey A. Romer Goldin, Claudia, and Lawrence F. Katz Lucas, Robert E. Oster, Emily, and Bryce Millet Rodrik, Dani Romer, Paul M. Sachs, Jeffrey, and Andrew Warner Williamson, John Washington: Institute for International Economics , pp.
Return to text 7. Return to text 8. Return to text 9. Return to text Latin America shares a similar colonial legacy in which large landowners and mine owners dominated native and African labor forces.
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Some Latin American countries, such as Mexico and Peru, implemented land reform in the twentieth century, but it only contributed to creating a large number of poor unproductive peasants. Urban workers who were employed in the public utilities or the manufacturing firms were more fortunate than peasants because they could take advantage of the political competition between the traditional elites and the emerging middle-class people. As a result, the social security system developed relatively well in Latin America although the coverage was limited to the formal sector workers.
Informal sector workers did not benefit from specific welfare programs but only from general price subsidies for food and energy. In contrast with Latin America and South Africa, high-performance Asian economies were generally praised by the World Bank for having realized high growth with greater equity World Bank Social policy was subordinate to economic policy.
Social security schemes for pensions and medical care did exist first for civil servants and soldiers and were later extended to formal sector employees in many Asian countries. However, the universalization of the coverage was delayed. Moreover, social security schemes, such as the Central Provident Fund of Singapore and the Employee Provident Fund of Malaysia, were based more on self-help principles than on collective security principles.
Only in countries such as South Korea and Taiwan, where democratic pressures started to mount early, did the Western-style welfare state also start to emerge early before the Asian Financial Crisis. Although the nature of the welfare-guaranteeing mechanisms may have been different in Latin America and East Asia, both faced a grave threat when monetary and financial crises hit the regions.
Since the s, financial globalization had brought serious challenges to developing countries. On the one hand, it became easier for the governments and private firms in these countries to borrow from foreign banks or raise capital from foreign investors. On the other hand, they became more vulnerable to changes in international interest rates or in the international flow of financial resources.
Latin American countries became the first victims of the financial globalization. Their governments borrowed from abroad so heavily that many of them fell into default when international interest rates went up and international reserves earned from the export of natural resources declined due to the drop in commodity prices. The debt crisis as well as the inadvertent responses by the Latin American governments caused inflation of the magnitude of three or four digits during the s and the first half of the s.
The fiscal bankruptcy and the deep economic recession shattered the viability of the existing social security system and general subsidy schemes.
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In addition, the Latin American governments were forced to accept structural adjustment programs in exchange for financial assistance from the IMF and the American government. All in all, they had to implement a drastic overhaul of their social welfare schemes. A similar mishap happened in East Asia fifteen years later.
The massive outflow of foreign capital that started in Thailand in May—July rapidly spread to the surrounding countries and suddenly brought several so-far prosperous economies to the brink of collapse. South Korea achieved universal pension coverage in Thailand saw the establishment of a virtual universal medical care service in when the Thaksin administration decided to distribute baht medical care cards to the entire population, including those who had never before had any benefits.
Even Indonesia, with a much lower per capita income, enacted the National Social Welfare System Act in , aiming to establish an integrated universal social welfare system Masuhara The implementation, however, was delayed and the introduction of a universal medical care system started only in The deterioration was especially conspicuous in China and Indonesia although the situation in the latter country is not yet noticeably bad.
The crisis-hit countries in East Asia actually realized a V-shaped recovery in one or two years. Although their annual average growth rate dropped after the AFC, they still grew faster than most of the developing and developed countries in the world. The failure to narrow the income gap has been most probably caused by the rapidity of the growth itself.
Everybody somewhat benefited from the high growth but the rapid growth has widened the gap between those who most benefited from economic growth and those who were left behind.
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The improvement in Brazil, Chile, and Mexico is especially noticeable. This phenomenon may seem contradictory to the fact that these countries were forced to dismantle many of the social security schemes during the crisis period.
In practice, the new social schemes such as private pensions and conditional cash transfer replaced traditional social security programs and the latter helped mitigate adverse effects of welfare reforms in Latin America. Chile took the lead in introducing a private pension system in With this reform, the old defined-benefit pay-as-you-go system was replaced by a defined-contribution individual account system. The scheme is similar to the provident funds in Southeast Asia, but the Latin American system is more radically privatized in the sense that individuals are allowed to transfer their accounts from one company to another.
After the s, other Latin American countries including Mexico, Argentina, and Peru adopted a similar scheme Kritzer et al. Another reform was the introduction of a social assistance program relying upon conditional cash transfer CCT. With this reform, benefits are not generally distributed among the population, but are targeted at the poor population. The first national CCT program was introduced in Mexico in , but spread to other parts of Latin America during the s.
After all these budget-saving reforms were implemented, the level of governmental social spending was still much higher in Latin America than in Asia, as shown in Chap. Notwithstanding, it is not clear to what extent new social programs have contributed to the shrinkage of social inequality in Latin America. The private pension system is not redistributive because it mostly benefits the formal sector population with sufficient income to pay a premium.
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Furthermore, the proportion of contributors as a percentage of the labor force was The great majority of the population is not covered by the private pension scheme.