Friday, November 09, 2007

Social integration in Latin America: An outstanding goal for a Summit

It is about to begin the XVII Latin America Head of States Summit. The main topic will be Social integration and Inclusion, which can also be displayed with the following question: How to keep the balance between economic growth and social progress?. Quite relevant as it is, the issue of social integration has been in the last 15 years ,at the core of economic policy debate in Latin American economies, following the “Washington consensus” approach at the beginning of the nineties.
That goal should not exclude a modern focus on public policy. Actually, the challenge is to find new instruments to make economic growth more effective to reach all of those who most of the time are left behind. Near 40 % of Latin America population live on poverty condition, which looks like there is an urgent need to do something about it.-
Most of modern economic experiences indicates that inequality and poverty, can be solved by a sustainable process of wealth creation ,rather than redistribution of existing wealth at any point in time ,which might turns out to be transitory. All of welfare gains based on the State intervention into the economy ,that Latin America economies achieved in the sixties and seventies ,was lost in the eighties Therefore the focus should be on a more comprehensive view about Economic Growth and its key variables.
How to get higher economic growth performance?: Recent history, tell us that a primary source for economic growth is based upon private firms ability to do its job, and do not interfere them with unnecessary regulations. Private firms, creates jobs at a faster pace than the State. This does not mean that both can no longer work together .Quite on the contrary, they need to one another. To Complement the Free Trade agreement currently in place ,with the right policy mix , means to improve incentives ( more flexible financial rules, more flexible tax policies for new firms, more flexible training program for labour force, more flexible procedures to begin new business ) for more small size firms, to jump into the entrepreneurial track, and at the same time, to make effort to design the right incentives to come in ,for big business with innovation potential ,instead they go elsewhere.
The next step is to design the proper framework for social policies, such as better targeted focus in public health and education expenditures. What about the State ´s role?. There is no way to change inequality and poverty level, without a reform to the State to make it more suitable for current needs of global and deeply interconnected economy, which requires higher competitiveness level. To think otherwise is like to play against physics laws. What ever goes up, it must goes down. That is the main lesson arising from the economic failure, in the eighties. Therefore, it means that the Colonial State , in charge of reducing poverty and inequality, with its current characteristics , will increase poverty and inequality in the years to come. In other words, any gain on poverty based on the State intervention , it might turns out to be transitory!. However , it is important to keep in mind that the Sate needs people asking for more state intervention . But all of those people, with the proper incentives could also start their own business , whether they had the chance to do so, which means that the State should reforms its procedures to allow more flexible requirements to start new business .
If this Summit includes in its reflection this prosperity path, there would be a lot of reasons to considered it a successful one.-

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