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Social Forces and States

Stanford University Press

Contents

Figures and Tables.........................................................................................viiAcknowledgments............................................................................................ixAcronyms...................................................................................................xi1 Social Forces and History: Explaining Divergent Poverty and Distributional Outcomes.....................12 South Korea: The Historical Origins of Equitable Growth..................................................263 Chile: The Historical Origins of Inequality..............................................................494 Mexico: The Historical Origins of Poverty and Inequality................................................735 Social Forces, States, and Distributive Outcomes.........................................................976 The 1980s and 1990s: Economic and Social Outcomes Diverge................................................1187 Social Conditions and Welfare Regimes in the Twenty-First Century........................................1428 Conclusions..............................................................................................167Appendix...................................................................................................183Notes......................................................................................................199References.................................................................................................213Index......................................................................................................235

Chapter One

IN THE FACE OF REPEATED ECONOMIC CRISES, the failure of market liberalization to produce sustained economic growth in many countries of the global south has eroded the widely held presumption that state intervention was at the root of the economic problems faced by these countries. Numerous authors have recognized the importance of state leadership in the high rates of economic growth achieved by the Asian NICs (newly industrializing countries): South Korea, Taiwan, Hong Kong, and Singapore (Evans 1995; Haggard 1990; Kohli 2004; Wade 1990). At the same time, backed by a rising chorus of criticism from civil society and labor organizations, scholarly and official circles have shown increasing concern about the perpetuation of widespread poverty and evidence of persisting or increasing levels of inequality. By the year 2000, poverty had become a major ethical, political, and economic issue. In that year, the U.N. General Assembly adopted the Millennium Development Goals, which, among other things, included the objective of reducing absolute poverty by one-half by the year 2015. The impact of the recent global financial crisis on the fragile economies of the global south has generated even more interest in such issues.

Mounting unease about the economic and political impact of high levels of intracountry inequality has replaced the early assumption that inequality was inevitable in the early stages of development. Conventional wisdom accepted the Kuznetsian prediction that, while inequality would rise during the early phase of modernization, it would subsequently decline as the labor force in the industrial sector expanded and as industry absorbed labor. At that point, large numbers of people would benefit (Kuznets 1955). Although debate on the issue continues, a number of observers argue that the failure of inequality to diminish in many global south countries is likely an important factor inhibiting the economic growth that is essential for job creation and poverty reduction (Cornia, Addison, and Kiiski 2004, 26, 42–43; de Ferranti et al. 2004, 25; López 2004; Midgley 1987, 38). In addition to raising the risk of civil conflict, high levels of inequality also contribute to rent seeking and predatory and criminal behavior (Fajnzylber, Lederman, and Loayza 1998; Nafziger and Avinen 2002; Wade 2004). Evidence that southern countries have generally higher levels of inequality than the industrialized nations and that inequality increased in many of them over the last quarter of the twentieth century is particularly worrisome (Betcherman 2002, 13; Cornia et al., 2004;). Understanding how inequality becomes established and entrenched is, therefore, of compelling importance.

Poverty, Inequality, and Social Forces

Unacceptable levels of poverty and inequality in many countries of the global south raise the question of why a few countries have been relatively more successful than others have been at reducing poverty and maintaining low levels of inequality. The ability of the Asian NICs to achieve sustained economic growth while eliminating poverty and maintaining relatively low levels of inequality stands in sharp contrast to the general Latin American pattern where stagnant economic growth rates and recurrent economic crises have occurred alongside higher levels of poverty and the failure to reduce preexisting high levels of inequality. Among Latin American countries, however, Chile stands out for its ability to achieve steady levels of economic growth and dramatic poverty reduction since the late 1980s.

This study seeks to explain the distinct poverty and inequality outcomes of three countries: South Korea, Mexico, and Chile. South Korea has had historically low levels of inequality and has been the most successful at reducing poverty. Chile has reduced poverty substantially since 1987 but continues to experience high levels of inequality. Mexico, where poverty has increased since 2006, has struggled with the highest levels of poverty of our three cases and has a high level of inequality (see Tables A-1 and A-2). In addition to these distinct outcomes, I chose these three countries due to their particular historical trajectories, which, on the surface, would seem to suggest outcomes different from those that actually occurred. Prior to 1970, for example, the Mexican economic model was widely regarded as successful. Hailed as the "Mexican miracle," steady annual per capita growth rates between 1950 and the mid-1960s made Mexico one of Latin America's most promising NICs. The country's foray into market liberalization during the late 1980s and early 1990s and the signing of the North American Free Trade Agreement (NAFTA) also earned it widespread international approval. Yet advancement in social well-being has been disappointing. Until the mid-1970s, Chile fared considerably better than Mexico in poverty and inequality indicators, despite having experienced intense political turmoil and one of the slowest economic growth rates in Latin America. Today, Chile has transformed into the "tiger" of the region with steady economic growth from the late 1980s (see Table A-5). South Korea has experienced ongoing success in maintaining both economic growth and comparatively low levels of inequality. This achievement has occurred despite the fact that its more recent political history has begun to reflect the strong popular activism characteristic of much of Latin American history: labor militancy and unrest, political protest demanding social justice, and a much-strengthened propertied class with considerable political...