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Trade Blocs, Neoliberalism, and the Quality of Life in Latin America
James Wilkie opens discussion of free trade in Latin America.

Trade Blocs, Neoliberalism, and the Quality of Life in Latin America

UCLA conference explores Mercosur, NAFTA, and the Free Trade Area of the Americas.

By Leslie Evans

"This economic model has created poverty and benefited the few against the majority."

In 1991 Argentina, Brazil, Paraguay, and Uruguay formed the aspiring regional common market Mercosur, which has had deepening ties with the European Union since 1995. In 1994 at the other end of the hemisphere the Clinton administration finalized the North American Free Trade Agreement (NAFTA) with Mexico and Canada. That same year, talks that are still continuing began among representatives of 34 states in the Western Hemisphere aimed at superseding both of these subregional trade blocs by forming a hemisphere-wide Free Trade Area of the Americas. Prodded by these actual and prospective free trade blocs, many Latin American countries have lowered tariff barriers and opened their economies to international investment. What is the balance sheet so far? A one-day conference at UCLA's Faculty Center June 7 looked for answers.

Organized by the Working Group on Political Economy of the UCLA Latin American Center, the conference, titled "Mercosur vs. NAFTA," heard speakers on educational, social, and economic integration in the context of globalization and international and regional free trade agreements. It was chaired by Professor James W. Wilkie, who heads the working group and the Program on Mexico.

The Dilemma of Middle-Income Countries

The conference was opened with a discussion of globalization by Geoffrey Garrett, professor of political science and vice provost of the UCLA International Institute. "I have been working on the effects of globalization," he said, "considering the position of middle-income countries, including those in Latin American as well as in Eastern Europe." In contrast with low-income countries such as China and India, he said, countries in the middle of the global income distribution "have not fared very well in the last twenty years, and the ones that have opened the most to the international economy have done even worse."

Garrett compared Latin America with Eastern Europe. "The countries that have recently joined the European Union are not only entering a free trade zone. They also get considerable development assistance from the wealthy nations of Western Europe, as well as the credibility of the economic and political institutions of the EU." In contrast, the Latin American countries are clamoring to enter as many free trade agreements as they can, but none of them will have EU-like benefits. "The kind of economic integration they can promote today is no different from that of the past twenty years -- and the results are unlikely to be much better."

There are really only two ways in the global economy, Garrett said: "One is to develop a knowledge economy, for which you need good education, sound banking and legal systems, a high level of skills; or there is the dumbing down strategy, to compete in the low wage economy by performing standardized tasks at the lowest possible price. Middle level countries don't have enough resources to make the leap into the knowledge economy, so they are forced to compete with the Chinas of the world by dumbing down and cutting wages."

This bifurcation is taking place even within individual state economies. "Look at the change in employment patterns in the United States," Garrett said. "Manufacturing employment has been in free fall. There has been an enormous rise in the low wage service sector. There are almost as many people working today in the hospitality industry as in manufacturing, at half the wages. At the same time there has been an explosive growth in high wage sectors such as financial services. In the United States there has been rapid employment growth at the top and at the bottom of the skill distribution, but with a hollowing out of the middle."

This trend should not be reduced to the idea that labor is being adversely affected. In 1980s and 1990s, Garrett said, "low income countries grew spectacularly, led by China and India. The high income countries have done reasonably well, making massive technological investments to increase productivity. It is the countries in the middle that have missed out from the benefits of globalization."

Neoliberalism Puts the Squeeze on Education

Carlos Alberto Torres, professor of education and director of the UCLA Latin American Center, reported on the effects of neoliberal economic austerity programs on education in Latin America.

"What has happened in Latin America is that the potential for education assistance has been damaged by a hegemonic project of neoliberalism," he said. "The whole model of neoliberalism is based in several premises: improving efficiency and accountability. Governments and institutions have compelled people to work more for less." The constriction of educational institutions has not been limited to Latin America: "The faculty at UCLA has not had a raise for three years."

In Latin America class size has increased. "There are overcrowded lecture halls, there is difficulty retaining faculty." Another consequence of cutbacks has been the reduction of the content of degrees. "Alternatives such as Internet education and distance education lead to giving people diplomas that mean nothing. Degrees have been devalued. In Argentina every lawyer is called doctor. When there is doctor here and doctor there, no one is considered a doctor any more."

Another aspect of globalization under neoliberal auspices is the growing mutual recognition of degrees issued by different countries. This, Torres said, has both positive and negative sides. "Supporters see universal accreditation as giving people credit for their work. Detractors see this as a way to increase brain drain and loss of qualified personnel to advanced countries."

He saw similar problems with the movement to introduce measurable performance standards as a criteria for setting teacher salaries and promotions. "The claim is that this will give us better performance at lower cost. Then there is privatization, the idea that the market is more efficient. If we think of education as a product or a service then there is a new role for entrepreneurship for teachers. But what about people who cannot afford to pay for school, and teachers who are paid for their product? In Mexico, there is a basic salary, then a stimulo. Any good university professor depends on two or three different sources of income. Salary is tied to productivity. There is growing resistance to these policies. There is demoralization, people trying to bail out."

Torres pointed to the Movimento dos Sem-Terra, the Landless Workers Movement, in Brazil, which has mobilized hundreds of thousands of peasants to redistribute land and demonstrate for funding for literacy campaigns "as a more politically viable model."

Another consequence of globalization, he said, "is the dualization of Latin American societies." By this Torres meant the expansion of the informal gray economy at the bottom in tandem with the growth of the highly educated elite at the top. "Even the fiscal viability of the state is put into question. More and more people are involved in informal labor markets -- street vendors, etc. This is a growing part of the economy that does not contribute taxes to the state. We see the dualization of a well-educated elite and a very uneducated, low paid difficult life."

Free trade will have little direct effect on education, Torres said. That is because education is "one of the most nationalistic areas. Teachers have to symbolically instill in the children the life of the state. Its purpose is to create citizens, of Argentina, Mexico, Bolivia, Guatemala. Therefore it is protected from international competition."

Carlos Alberto Torres concluded by saying that "after 30 years of neoliberalism we are worse off, because we have not solved the problem of illiteracy. This economic model has created poverty and benefited the few against the majority."

Trade Blocs and Social Integration

Antonio Cisneros defines social integration as "a process for managing inequalities and division." It is what gives a society and its government legitimacy. Cisneros has reason to be particularly concerned with the erosion of social integration, as he is a Professor of Development at the Bolivian Catholic University in La Paz, Bolivia, a center for some of the deepest social unrest seen anywhere in Latin America in recent years.

Cisneros proposed that social integration generally develops as a result of deliberate state policy, and that its most effective means are policies that reduce poverty, promote technology transfer and economic growth, and sustain social development.

"Last November there was a presidents' meeting in Santa Cruz, Bolivia," the 13th Ibero-American Summit. "There was controversy. The idea was to get a consensus to set up a free trade agreement. There were many contradictory analyses. Two weeks before, in October, there was a popular uprising which resulted in a change of government."

At the end of May 2004 there was a meeting of 58 heads of state at the third European Union-Latin America Summit in Guadalajara, Mexico. During that conference, Cisneros commented, "there was a lot of civil resistance by the population." Social unrest, he concluded, is directed at free trade projects, and globalization has had negative effects in the region. "Social integration and development have not improved in Latin America under globalization."

Capital transfer "after 20 years has resulted in concentration of capital, loss of jobs, and widening inequality between rich and poor, in and between countries," Cisneros said. "More than 200 million people in Latin America cannot meet basic needs, food, shelter. More than 100 million people are indigenous with very low poverty levels. Ninety-one million became poor in the last 20 years. Twenty-three million are no longer middle class. Forty million children live or work in the streets."

He insisted that plans for the Free Trade Area of the Americas (FTAA) "must incorporate some ideas on social equality to become viable in Latin America." He added that "There is much unrest in my country presently. It will not settle down until some of its grievances are met. Regarding civil society, community and indigenous groups feel they have been left out of globalization and the free trade process. There is a rapid decline in the quality of life and it is getting worse. Poverty is getting worse. Native indigenous groups resent the FTAA policies. Trade and investment are oriented toward big business. There is no priority or interest in improving social services."

Cisneros concluded that Latin America needs a spokesperson for its interests in the FTAA discussions. "Will it be Brazil? Will it be Mexico? Will it be Mercosur? It is up to the governments and the leaderships to make the FTAA an instrument of hope and not an instrument of despair."

Negotiations for the Free Trade Area of the Americas

Eugenio Valenciano, professor of Economics at the Universidad de Belgrano, Buenos Aires, Argentina, turned to the strictly economic and commercial side of global trade and trade blocs for Latin America, particularly the in-progress negotiations to establish the hemisphere-wide Free Trade Area of the Americas. Professor Valenciano delivered his paper in Spanish. Following is a summary of his remarks contributed by Manuel Arroyo, a student in the Latin American Studies interdepartmental MA program at UCLA.

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The 34 countries that today are negotiating the FTAA form an important market: 800 million inhabitants, 20% of world trade, and 40% of the world's GDP. The proposal to create a free trade area that will encompass all of the Americas and the gradual elimination of commercial and investment barriers was made by President George H. W. Bush in 1994. The FTAA would include all of the countries in the American continent, except Cuba, and an agreement is expected as soon as the year 2005.

The United States is exerting pressure favoring the establishment of an agreement fully encompassing foreign direct investment, governmental purchases, and the protection of intellectual rights and patents under a system of regional rules. This system would also institute a reduction of commercial tariffs.

The countries of the Mercosur [Argentina, Brazil, Paraguay, and Uruguay] are applying pressure to get the United States to agree to negotiate the U.S. subsidies on agricultural goods that according to Washington should be contested within the framework of the WTO.

Mercosur, a customs union created in 1991 by Argentina, Brazil, Paraguay, and Uruguay, has become the main Latin American actor in multilateral negotiations (Latin America - Mercosur - FTAA - EU). To these multilateral complexities, derived from the commercial interests and economic asymmetries, one has to add the difficulties and contradictions of Latin American integration.

Today the FTAA negotiation process has stalled, mainly due to the impossibility of reaching an agreement between Mercosur and the United States. On one hand, the United States (and Canada) had proposed sectorial and partial agreements and to implement them as soon as they are achieved (early harvest). On the other hand, Mercosur has insisted that there be only one indivisible negotiation (single undertaking).

Brazil in its self-proclaimed leadership role within Mercosur has been important in the FTAA negotiation process, particularly because Brazil and the United States have held antagonistic positions since the launching of the FTAA initiative. Brazil has considered the consolidation of an extended Mercosur as a priority, leaving the negotiations with the United States in second place. Mercosur, under the leadership of Brazil, made its participation in the FTAA negotiations conditional on acceptance of a 4 + 1 formula [that is, the 4 Mercosur member states be treated as a bloc--ed.] like the one utilized in the relationship between the United States and Mercosur, known as the Rose Garden agreement (June 1991).

However the United States did not accept the conditions imposed by Mercosur in the negotiations pertaining to the FTAA. The United States prefers a bilateral modality that gives it advantages in negotiating power by avoiding Brazil's influence when Mercosur is able to make decisions as a group.

Even though the Mercosur countries have had a weak cohesiveness and their economic results have been quite poor, the 4 + 1 formula achieved in the Rose Garden agreement emerged as a positive outcome for the group, proving its capacity to maintain a unified strategy in multilateral negotiations.

Brazil has opposed the United States strategy in the negotiations, alleging that, through the FTAA, the U.S. hopes to augment and consolidate the penetration of its firms, minimize the productive capacities of the region, and determine the world economic agenda.

Latin American Institute