Welfare state development in post-neoliberal Latin America

by Gibrán Cruz-Martínez

Image of colourful houses in Buenos Aires
Céline Harrand via Flickr

Can we measure the degree of welfare state development in Latin America beyond the popular social expenditure or welfare generosity indicators? And why have some countries in the region developed more comprehensive welfare systems than others? These two questions were the basis for a recent publication and are briefly answered in this blog post.

This research addresses some limitations of previous comparative social policy research in the region (including mine). First, we built a composite multidimensional welfare state development index for 18 countries in the region for the period 2000–2015. Second, we tested the possibility of identifying a common path of economic and political sufficient conditions followed by countries with similar degrees of welfare state development in the (post) neoliberal era. The (post) neoliberal era refers to the return of the state with the arrival of left-wing governments to a large part of Latin America since 1999, what has also been called the ‘pink tide’.

Measuring welfare state development

Using social expenditure indicators is a common way of measuring the welfare state. One of its main strengths is data availability across time and space. Social expenditure also allows us to measure the welfare generosity in an assortment of social policy programmes and services (i.e. education, health, housing, social insurance, social assistance).

However, as has long been argued, the welfare state is much more than cash transfers. Social expenditure is just one of the many dimensions that need to be incorporated to grab the extent of development of a welfare system – both in the global north and south.

This research aims to overcome this single-dimensionality limitation of previous studies by proposing the four-dimensional Welfare State Development Index (WeSDI). The new WeSDI is not a relative measure, since we can add as many countries or regions as we want without changing the scores of the existing cases. Therefore, future research could incorporate European, African and Asian countries, for example, to compare the degree of welfare state development in each of the four dimensions considered.

The WeSDI has 15 indicators, including data from health, education, social assistance and social insurance programmes (read the paper if you are interested in more details on the methodology).

No Latin American country has a very high welfare state development (WeSDI score above 0.8); this is where we would expect to find Nordic and some corporatist European welfare states. Uruguay is the only country with a high welfare state development score, while Paraguay, Peru, Guatemala, Honduras, Nicaragua and El Salvador show the lowest level of multidimensional welfare state development in the region.

While a large part of the region has experienced a social policy expansion in terms of social expenditure and the percentage of the population being covered by social protection programmes, the region is still characterized by having a dual social protection system. All countries now have social assistance programmes covering those with low incomes and those working in the informal sector. However, there is still a long road for homogenizing the quality of the transfers and services received by the minority in the formal sector and the majority with lower incomes mainly working in the informal sector.

What if we compare some of the indicators from the welfare state development index in Uruguay (the most developed welfare system in LA) and Europe? For example, education expenditure (% GDP) in Uruguay is similar to France and the UK, and higher than the average for EU-27 countries. Something similar happens in housing, where the Uruguayan expenditure is similar to the EU-27 average  and higher than in countries like Spain, Italy, Netherlands, Austria, Portugal, among others. The gap becomes significant when we compare health and social protection expenditure. The Uruguayan health expenditure is half the EU-27 average and its social protection expenditure is equivalent to 40% of EU-27 social protection expenditure.

However, in the last two decades, there has been dramatic improvement reducing Uruguay’s out-of-pocket spending as a percentage of current health expenditure by 35 per cent.  Furthermore, approvements have been achieved with regard to pensions: 87 percent of Uruguayans aged 65 or older now receive a contributory retirement pension, the highest pension coverage in the region.

Explaining welfare state development

Recent comparative studies have highlighted several variables and theories that could help us understand the different levels of welfare state development in Latin America, as well as the factors behind the emergence, consolidation and expansion of the welfare systems.

According to previous publications there is a strong positive relationship between social security systems’ historical experience and the region’s welfare state development. Democracy has been considered a necessary, although not sufficient condition for welfare state development. Closely linked to the previous argument, democracy enabled the ‘left’ to implement redistributive policies and facilitated the inclusion of ‘outsiders’ into the social protection systems. Social and labour mobilization combined with “the electoral competition for the vote of outsiders” and low-income voters appear to be essential drivers behind the social policy expansion in the inclusive twenty-first century.

Existing research has argued that economics matter in addition to politics to understand the different degrees of welfare state development. Low economic development levels combined with democratization appear to be the main reasons behind the relatively low welfare state development levels in eight Latin American countries during the last three decades of the 20th century. The fiscal burden and external debt appear to be relevant drivers of social spending in the Washington Consensus era. In contrast, fiscal burden, economic openness and GDP per capita seem to be important determinants of social spending during the pink-tide period.

Out of the several determinants of welfare state development mentioned in the literature, our analysis found that the combination of just two are sufficient to explain why five countries ended up with the greatest development. Countries experiencing higher government revenues combined with higher democratic strength during the post-neoliberal area are the ones who were able to establish medium-to-high welfare state development in Latin America. In addition to Uruguay, this is the case of Chile, Brazil, Argentina and Costa Rica. Higher government revenues combined with the commodity boom facilitated the funding of the social policy expansion.

On the other hand, low welfare state developments are found in the context of lower democratic strength, weak labour movements, lower fiscal burdens, and a shorter history of social protection programmes. This is the case of Paraguay, Peru, Guatemala, Honduras, Nicaragua, and El Salvador.

This shows that both economics and politics matter to understand why some Latin America countries have developed their welfare systems more than others. Democracy, the ability to collect revenues, the strength of the labour movement and the historical experience (policy legacies) of welfare institutions are the most relevant determinants to explain the converging and diverging paths of welfare state development in the post-neoliberal era.

Gibrán Cruz-Martínez (@gibcruz) is a political scientist working at the Institute of Public Goods and Policies, CSIC.

Disclaimer: All blogs express the views of the author(s), and not of the SPA.