Throughout the past decade, Latin America has made impressive strides in implementing democratic governance and liberalizing its economies. Inflation has been tamed, budget deficits have been reduced, and growth rates have been steadily recovering from the "lost decade."
Despite this progress, living standards for most Latin Americans have not improved, and the gap between rich and poor is growing. The middle class is losing ground, and small and medium-sized enterprises are shouldering much of the burden of economic reform without realizing its benefits. Not surprisingly, enthusiasm for reform is lessening, yet much remains to be done in the way of reforms.
With this in mind, CIPE recently hosted a two-day conference on "Strategies for Advancing Reform in Latin America." Held in Miami on December 2 - 3, the conference brought together some of the region's top economists and business association leaders to discuss the private sector's priorities for the "next generation" of reform.
The conference focused on three main objectives:
Conference participants agreed that the next wave of reform will include issues that have a more direct bearing on the business environment. These include independent judicial systems, access to equal education, more flexible labor markets, institution-building, privatization, and a crackdown on corruption.
Douglass North, the 1993 Nobel laureate in economics, delivered a keynote address on "The Next Step: Pursuing the Institutional Reform Agenda." He noted that in bringing about reforms, economists can change the formal rules of the game, but these changes provide only a "very blunt instrument" that does not lend itself to fine tuning an economy. Equally important for reform, North suggested, are a society's informal rules of behavior and enforcement mechanisms. Latin America adopted formal rules like those of the United States, he said, but it ended up with very different results because the region's informal rules and enforcement were quite unlike those in North America.
North's assessment was reinforced by Sebastian Edwards, Professor of International Economics at UCLA. For the next wave of reform to build upon the first, he argued, several conditions will be necessary:
Edwards also highlighted the need to make it clear to the public that "people can be pro-democracy, pro-market, and at the same time be pro-human rights."
Guillermo Perry, Chief Economist at the World Bank for Latin America and the Caribbean, reviewed the benefits and shortcomings of the "Washington Consensus," ten principles for reform that were espoused throughout the 1990s. While these reforms have accounted for growth rates of between 1.5 and 1.8 percent annually, he noted, they have not had a significant impact on poverty reduction or income distribution patterns.
Against this backdrop, the World Bank has concluded that the second wave of reforms must draw more heavily on new institutional economics. The main lesson, he said, is that institutions are not only important for stability, but that they are also extremely important for growth. Institutions not only determine the efficiency of markets, he pointed out, they sometimes determine the existence of markets.
Dr. Paul Holden, Director of the Enterprise Research Institute and the former owner of a successful international business, kicked off the second day of discussion: generating ideas on future reforms. He stressed that institutional development, such as property rights and policies that allow a more effective management of risk, underlies the need for continued reforms. He predicted that reform would strengthen the weak institutions that, according to many, characterize Latin American countries.
Conference participants brought up several new points, including:
In wrapping up the conference, Keith Miceli, Deputy Director of CIPE, noted that fundamental changes have occurred in the governance of Latin America since CIPE began working in the region 15 years ago.
But, Miceli warned, "More remains to be done, and the reforms that have been achieved to date are not etched in stone. They could be overturned by new administrations that are less friendly to market systems and the private sector. These caveats point to the continued need for involvement and advocacy on the part of the private sector."