economy The New Economic, Social, Communitary, Productive Model

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1 PLURAL economy Monthly publication of the Ministry of Economy and Public Finance Year 1 / Nº 1 / September 2011 The New Economic, Social, Communitary, Productive Model How the Model works ElThe neoliberal model vs. the New Model The actors of the New Model Teléfono: Social Communication Unit Edificio Palacio de Comunicaciones - piso 19 Av. Mariscal Santa Cruz Teléfono/Fax: La Paz - Bolivia

2 La Paz, September 2011 Pluraleconomy 1 To the reader The presents the first issue of the magazine Plural Economy, a periodical of systematic dissemination of the thought of people from the University Academy who ventured back in the second half years of the 1990s, to begin a journey of reflection not always understood - towards the design of an economic theory for the replacement of neo liberalism. Such theory is now known under the name New Economic Social Communitarian and Productive Model. This model was implemented since 2006 by the administration of President Evo Morales. All the new powers of the State are aimed at making Bolivia - under the direction of the public sector - a country industrialized by the coordinated action of four actors: the private, community and cooperative sectors, and the public sector itself For this purpose, the following pages present interviews to the Minister of Economy and Public Finance Mr. Luis Arce, who, in the first instance, talks about the formation of the Grupo Duende (Goblin), in which he and other scholars started the analysis of the neoliberal model imposed in Bolivia in August 1985 with the infamous Decree After other remembrances of the time, Luis Arce explains the seriousness of the energy, food, climate and financial crises and of macroeconomic policies that cast doubt on the prevalence of the capitalist system, and place the industrialized countries of the northern hemisphere in a precarious position, as evidenced in the financial collapse of the United States, Ireland or Greece, among others. Bolivia, said Luis Arce, has watered in such turbulences with some comfort, because five years ago the administration of President Morales adopted measures to stimulate the domestic market and not rely exclusively on the external one; also State assume a leading role in planning for the economy, manage public companies, invest in the productive sector, finance projects, regulate the market players and so on. Besides, the State begun to apply income redistribution policies, to reach vulnerable groups who were neglected by the previous administrations. All the new powers of the State are aimed at turning Bolivia into a industrialized country through coordinated action by four actors: public, private, community and cooperative sectors, whose integration configures a plural model; it means a Plural Economy. In the following issues of the magazine, the reader will be provided other theoretical and practical elements that will facilitate the understanding of the economic thought of the Bolivian women and men who contributed to the formation of the New Economic Social Communitarian and Productive Model. Unit of Social communication

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4 La Paz, September 2011 Pluraleconomy 3 The New Economic Social Communitaty Productive Model By Mr. Luis Alberto Arce Catacora What is an economic model It is not the claim of the New Economic Social Communitarian and Productive Model to enter directly to the change of the capitalist mode of production, but lay the groundwork for the transition to the new mode of Socialist production An economic model implies a way of organizing the production and distribution, therefore, a way of organizing the social relations of production. In the history of mankind, there have been several economic models under different modes of production that have established different social relations; also, these relations determine the way in which societies are organized into legal, religious and cultural aspects. It is not the claim of the New Economic Social Communitarian and Productive Model enter directly to the change of the capitalist mode of production, but lay the groundwork for the transition to the new mode of Socialist production. An economic model defines how economic surplus is generated and distributed. A society is sustainable over time when the generation of surpluses is aimed at the satisfaction of current and future needs through the distribution of this surplus in society, when surpluses do not satisfy the collective need, then it is necessary to redistribute them according to social needs. In the neoliberal model, the surplus was generated from the worker s surplus-value. Workers are exploited by making them to work more hours than are necessary to produce the goods and depriving them of benefits. That surplus was also produced by the exploitation of natural resources in the hands of transnational corporations and the private sector, so that the surplus value accrues to them without making the necessary transfers to the State for it to address education and health for the people. Therefore, the distribution of the surplus was not equitable nor the income so that social problems arose which ultimately led to economic problems. When economic problems are resolved, social problems are gradually eliminated. What is happening in Europe at this time is a social mobilization due to economic problems. There had supposedly equitable distribution of income; however problems now arise because people are losing their hard-won economic rights. For example, the retirement age is increasing, salaries to public employees are decreasing, the State is lacking investment capacity; i.e. the income distribution is becoming worse provoking social problems. The New Model is a transition model to Socialism

5 4 La Paz, September 2011 This is a transition model towards Socialism in which many social problems will be solved gradually while the economic basis will be consolidated for an adequate distribution of economic surpluses A model of transition As already stated, at the time of designing of the new model, they wondered what comes after the neo-liberal model, is it is socialism? Which is the ultimate goal? or, is there an intermediate stage? This is a model of transition to socialism, which will gradually solve many social problems and strengthen the economic basis for an adequate distribution of economic surplus. It was never thought to build socialism immediately. Even Carl Marx -when speaking about the Paris Commune- and Lenin explain why is not possible the mechanical transition from capitalism to socialism. There is an intermediate period. In the case of Bolivia, the New Economic Social Communitarian and Productive Model would allow laying out the conditions for a transitional society towards socialism. The diagnosis To understand the new model it is paramount to depart from a diagnosis of the capitalist system, which since 2005 already experienced an acute wear expressed in four crisis: energy, food, climate and financial. However, recently it was added the crisis of macroeconomic policies. The energy crisis is seen in the increase and the price volatility of oil and natural gas, thus affecting the electrical energy costs. This crisis erupted with hardness of the world s largest countries, proof of this are the blackouts in the large cities like New York and Paris; This is a sample of the high consumption of energy, in contrast to the insufficient capacity of power generation in these countries. On the other hand, there is a great potential in South American countries to generate energy, although they do not have the same level of demand. This situation is evident in the nighttime pictures taken via satellite, where we see that the northern hemisphere is extremely lit, while the southern hemisphere not. Only major cities, like Rio de Janeiro, Buenos Aires, Caracas, are lit, while the rest of the South America and Africa are virtually in darkness. This growing demand for energy in developed countries together with the depletion of deposits and reserves of gas and oil in the world, forced several industrialized countries to seek alternative sources of power generation, including nuclear power. However, the latter is being revised following the latest developments in Japan. The food crisis was already warned in 2005, when the Government Plan of the MAS proposed measures to reach food security. Food production became insufficient in the world by the growing demand for food, especially in Asia, and the decline of arable agricultural land on the planet. In addition, the change in consumption caused by the energy crisis because some countries used much of its land for the production of bio fuels is deriving in using food for machines, instead of food for people. In the New Model, the State is the fundamental actor of the economy

6 La Paz, September 2011 Pluraleconomy 5 That bubble blew up in the United States after 15 years of its expansion. Unwise economic policies and a mistaken supervision of the nancial system of that country made this situation even more serious up to reaching a point of a nancial crisis which does not seem to nish The third crisis of capitalism is the climate crisis. International agencies have called it: climate change, but it is actually a climate crisis generated by the warming of the Earth as a result of a disorderly production and consumption and the plundering of natural resources by the developed countries and transnational corporations, to the detriment of the ecology and the environment in the world. Hence arisen climatic phenomena such as El Niño, La Niña, cyclones, floods, and hurricanes have worsened at the global level in recent years. For example, Bolivia is facing high and low temperatures that had never been before. High heat waves become fires and droughts like those recorded in the Chaco region, among others. The fourth crisis of the capitalist system is the financial crisis; the so-called financial bubble on Wall Street that led to a series of bank failures, because of the use of very imaginative derivatives which got out of control. In 2008 that financial bubble -which was expanding for 15 years in United States- exploded. Misguided economic policies and poor supervision of the financial system in this country contributed to such condition. Now the crisis shows no sign of ending because it has spread its impact to Europe generating concerns worldwide as well. There is a crisis of trust within the society, about what the capitalist system had built and the role of the market in the economy. Developed countries are facing fiscal and debt crises and there The five crises of capitalism Currently the world is not only going through the financial crisis and its consequences in the real sector; but also it is enduring: Climate crisis Crisis in the financial system Energy crisis Crisis of macroeconomic policies Food crisis In the New Model, the emphasis is in Production

7 6 La Paz, September 2011 is social unrest in Europe unlike small countries. Restricted fiscal policies are heading for to increase of the retirement age, which is a reflection of the financial crisis, while the situation is different in Latin America. The world currently lives in a senile, old, capitalist model that is not giving answers to the crisis which derives into the fifth crisis: the crisis of macroeconomic policies, as evidenced by the overwhelmed lack of responses of capitalist-way economic policies to the problems of capitalism itself. There are two main flows of economic thought within the orthodox capitalist conception: monetarists and Keynesians. Both theories have no answers to the crises of capitalism. Today, Keynesianism has been tested; the U.S. President, Barack Obama, dressed the shirt of John Maynard Keynes and began to implement its economic prescriptions, but, unfortunately for the Americans the crisis continues, unemployment is still high and recession is acute in that country. Monetarist policies were also put into practice and failed because these policies in the past were the core element of neo-liberalism in several Latin American countries which have gradually been swept away. The crises of capitalism are opportunities for Bolivians, since Origin of the design of the new economic model The New Economic Social Communitarian and Productive Model was brewed in a scenario of rise of the neo-liberal model. Back in the year 1999, when Bolivia lived far cusp of neo-liberalism with the so called Capitalization (Privatization), a group of old socialist, former activists of the Partido Socialista Uno (PS-1), began to think of post neoliberalism. This group was named Grupo Duende (Goblin) and consisted of lecturers, including Luis Arce, professor at the Universidad Mayor de San Andres UMSA and at the Development Sciences Post-Graduate Program of UMSA (CIDES-UMSA). The new model designers considered that Francis Fukuyama s book (The End of the History) was wrong, because capitalism was not the only and last instance of history: there was something else ahead. By this time, Álvaro García Linera, now Vice President of Bolivia was conducting his own research on Bolivia s social issues. He formed the Grupo Comuna integrated, among others, by Raúl Prada, Luis Tapia and Oscar Vega. At a meeting of the Goblin Group with Álvaro García Linera s group, they realized that they held coinciding thoughts and they spoke the same language; while using different methods and tools. Comuna was working on research about the socio-political process in much depth while Goblin was working on the transition to socialism through a construction of a new economic model. Additionally, and once the electoral campaign for the elections of 2005 started, Luis Arce worked on the Economic Plan of Government for the Movimiento al Socialismo (MAS) along with Carlos Villegas, then director of CIDES-UMSA, and other researchers. The Research of Arce and Villegas were the embryo of what later became the New Economic Social Communitarian and Productive Model which has been the base for the economic programme of Government of the Movimiento al Socialismo(MAS), from 2006 onwards, which is an economic model for Bolivia made by Bolivians. Unidad de Comunicación Social In the New Model, the State is the promoter of the Economy

8 La Paz, September 2011 Pluraleconomy 7 the country has the resources to become a major producer of energy and food, the two major weaknesses of the capitalist system. Therefore, reaching the status of food and energy producer should be the country s strategy to tackle these problems, without neglecting the other sectors of the economy. How the model works The New Economic Social Communitarian and Productive Model is two-pillar pronged: the strategic sector that generates surplus and income and employment engendering sector. The model recognizes four strategic sectors that Bolivia counts on to generate surplus for all Bolivians: hydrocarbons, mining, energy and environmental resources. They are traditional sectors that supported the primary export model; however the country cannot change its economic structure overnight; there must be a strategy that is embodied in the new model to break that surplus-export negative circuit. Income and employment generating sectors include manufacturing, tourism, housing, agricultural and others that have not yet been dynamic enough. According to the new model, to make Bolivia a dynamic economy, generate that productive transformation, and change the primary export model, it is required to put the foundation stone in manufacturing, industry, tourism and agriculture by transferring the surplus of mining, oil, and electric energy to those sectors. The State is the re-distributer, which must be able to transfer the resources of surplus sectors to the generators of employment and income. In other words, what it is intended is to free Bolivia from dependence on exports of raw materials, i.e., Bolivia has to leave the primary export model for building an industrialized and dynamic economy. While for a time Bolivia will remain a primary exporter, at this time the country should have clarity about the goal and the path to take. The new economic model is based on the success of the administration of natural resources by the State, and it is designed for the Bolivian economy. STRATEGIC SECTORS: SURPLUS - GENERATORS Surpluses INCOME AND JOBS GENERATOR SECTORS Hydrocarbons Mining Electricity Environment resources REDISTRIBUTER STATE REVENUE REDISTRIBUTION: SOCIAL PROGRAMS Maufacture Industry and handicraft Tourism Agricultural development Housing Trading, transport services, other services Juancito Pinto Bonus Dignity Pension Juana Azurduy Bonus POVERTY REDUCTION STEPS The New Economic Model boosts domestic demand as much as the external

9 8 La Paz, September 2011 The neo-liberal model vs. the new model Bolivia established a pattern of exporting primary development, i.e. a model based on the exploitation and export of raw materials for the benefit of a few. In the new model economic, social, community and productive the emphasis is on the production and the redistribution of income In the scenario of the structural crisis of capitalism and under five crises appearing together, which overlap, they intertwine and they complicate to capitalism, the new Bolivian model is constructed. The New Economic Social Communitarian and Productive Model depart from a diagnosis of the mistakes of the neoliberal model to oppose a new policy that is the antithesis of the neo-liberal model of economic policy in response. 1. The first element is the critique to the free market and to the hypothesis of the efficient market, and therefore the new model places the State as the key player in the economy and that corrects market failures. The Neoliberalism holds that the market is the best and most efficient administrator of resources in the economy, however, this premise failed since the Bolivian economy did not get an effective boost towards economic development. State-owned enterprises were privatized, the State s participation was reduced in the economy, and there were no adequate allocation of resources in Bolivia, which generated a larger gap between rich and poor. In this sense, the market shows serious weaknesses. 2. The second element of the new model is to attach to the State a very active role; The State has to make everything needed: planner, entrepreneur, investor, banker, regulator, promoter of development. But in addition, the State has the obligation of generating growth, development in all instances of the country. 3. The third element is that the State, with the nationalization of natural resources, takes control of strategic sectors as oil, mining, electricity and telecommunications, to benefit Bolivians and not the transnational corporations. It is the antithesis to the scheme posed by the neo-liberal model, which privatized state-owned companies and transferred surplus abroad as foreign direct investment repatriated profits. Such scheme gave away control on natural resources to transnational corporations. That was the essence of the neo-liberal model. 4. The fourth element is the change of the existing export primary pattern in the country by a process of industrialization and productive development. From the colonial times and through the neoliberal period, Bolivia established a pattern of commodity-export development, i.e. a model based on the exploitation The State is the Redistributer of resources to excluded and vulnerable sectors

10 La Paz, September 2011 Pluraleconomy 9 It is necessary to change the productive matrix of that old primary- exporter model for another that prioritizes the production and, consequently, the increment of the value of products and export of only raw materials. In the New Economic Social Communitarian and Productive Model, the emphasis is on production and generation of products with added value. The need for implementing an industrialization process for Bolivian raw material forces the country to change the mentality of its people towards a mindset focused on such process. In recent years it was evidenced that there is a large of an idle production capacity. It is necessary to change the productive matrix of that old primary export model to another one that prioritizes industrialization and, consequently, increases the value of the products. Enhancing the material basis of production is essential to get out of poverty. 5. The fifth differentiating element between these models is that the New Economic Social Communitarian and Productive Mode looks for achieving economic surplus and redistribute it to the sectors previously excluded from it.. Thus, the State assumes the role of surplus allocator. The neoliberal model concentrated income in few hands, and therefore excluded other segments of the population. With the new model, it is intended to get the inclusion of the excluded of the excluded. How to do that? By not concentrating the income and redistributing it aiming especially to the marginalized of Bolivian society. 6. The sixth element is the State is the main promoter of the economy, it is the most important player, symbolically leads the economy as the attacking midfielder (# 10) does in a soccer team. The neoliberal model assumed an economy focused on private initiative, while the State worked as a mere appendage. A former President of Bolivia handled the export or die motto and this assertion was not by chance because within the private sector, the sector that would generate the development of the country s economy was the exporting one. However, this sector did not diversified; it was not generating added value nor creating additional wealth for the country, and therefore the neoliberal collapsed earlier than in other countries, where there was a better export capacity and a better exporting private sector. 7. The seventh difference is that the new economic model boosts domestic demand at the same pace as external demand to achieve economic growth. The neoliberal model was external demand-driven mainly as it considered that exports would be the engine of the economy. In the new model the external sector is not the only driver of the economy. In the New Model macroeconomic stability is a social asset

11 10 La Paz, September 2011 The new economic model overcame the dependence of the external savings and developed the capability to generate domestic saving for investment, reducing the external indebtedness and to achieve fiscal surplus While exports are important when the economy takes advantage of trade, a country should not neglect domestic demand. Under the new model, the State is working to strengthen domestic demand, which allowed Bolivia to tackle the financial crisis and achieve greater growth rate in the region (in 2009) when the rest was suffering from the crisis. External demand fell globally in 2009 because of the financial crisis and countries like Colombia and Chile could not keep up their neoliberal models based on their exporting sectors. If Bolivia would have bet solely and exclusively to the growth relying in external demand, it would have been experiencing strong recession in But it was not so because of a stronger domestic demand. The Bolivian economy since 2006 is like a plane that flies with two engines, domestic demand and external. 8. The eighth difference is that under the new economic model Bolivia rid off the dependence on external savings and developed the capacity to generate domestic savings for investment, reducing the external debt and achieving fiscal surplus. In the neo-liberal model, Bolivia was dependent on external savings for public investment and also to ensure the sustainability of the public sector, i.e. fiscal deficits were financed by external debt. With the implementation of the new model, it has shown that Bolivia has the capacity to generate domestic savings not only to have a strong and solid fiscal sector, but also to increase public investment with domestic resources. 9. The ninth difference is social inclusion. The new model enables the generation of opportunities for more people through a more dynamic economic development that drives to redistribution with employment generation. In the neo-liberal model stagnation, poverty, inequality prevailed; lack of economic opportunities was a constant. 10. The tenth difference is that the new economic model considers macroeconomic stability as the starting point - not the ultimate goal to generate economic development. Macroeconomic stability in the neoliberal model was an end in itself. It was the ultimate goal that all economic policies had to pursue. Moreover, the fight against inflation was practically the only goal that neoliberal economic policy pursued, because the private sector was entrusted to deal with the rest. In the new model, macroeconomic stability is a social asset and is the basis on which stand the economic development and redistribution of income and industrialization of natural resources will be built up. In the New Model, the macroeconomic stability is the starting point, not the goal

12 La Paz, September 2011 Pluraleconomy 11 The neo-liberal model Free market. The market is the mechanism through which resources are allocated and correcting imbalances. Efficient market hypothesis State policeman. State observer. The market is the self-regulatory mechanism of the economic process State that privatizes, and transfers surplus abroad and does not preserve natural resources that belong to the Bolivian people Development pattern: commodity exporting Concentration of income and proliferation of exclusion Economy focused on the private sector development Entire reliance on external demanddriven growth Dependence on external savings for investment, higher debt and fiscal deficit Stagnation, poverty, inequality and lack of opportunities Macroeconomic stability as an end in itself The new model The State intervenes to correct the market failures (absence of redistribution of wealth and transnational monopoly of strategic companies) Active participation of the State in the economy. The State should intervene in the economy through its seven roles: Planner, entrepreneur, investor, regulator, benefactor, promoter, and banker Nationalization and control of natural/ strategic resources to benefit Bolivians Development pattern: Industrialization for economic development Income redistribution. Plural economy and social inclusion State sponsor of the plural economy Growth based on external demand and domestic demand Generation of domestic resources for investment, lower debt and fiscal surplus Ongoing development, redistribution and employment generation Preserving macroeconomic stability as a social asset as the basis for economic development The New Model pursues to built up an Industrialized Bolivia

13 12 La Paz, September 2011 The reason for the name The New Economic Social Communitarian and Productive Model is: Social, because it places emphasis on solving social problems rather than individual problems. Communitarian, because its main objective is the common good and welfare of all, but also it contains traditions and values of ancestors, which were displaced in the neoliberal model by the exaltation of individualism. It was necessary to modify and incorporate fundamental values such as solidarity. State policies have to have a solidarity component. Productive, because it is not conceivable to beg to defeat poverty in Bolivia. The only decent, responsible, and sustainable way out of poverty is producing goods and services in Bolivia. That is the reason the Bank of Productive Development (BDP) was created, meaning to channel credits which gradually shall transform the production matrix of the country. Who are the players in this model? Here comes the concept embodied in the Political Constitution of the State (CPE): the Plural economy, which establishes four key players: the State, the private sector, cooperatives and communities. These are the Plural Economy players The State is the fundamental promoter, organizer, income re-distributor, in sum the most important player of the team. Then it is the classic private enterprise that generates employment and has some independence from the State to produce and distribute. As part of the plural economy, there is also the cooperative social economy: the associative unions, because cooperatives in Bolivia are deeply rooted not only in the mining sector, but also in the rural sector as well as in the financial sector (credit unions). The most important characteristic of the plural economy is the recognition of all players involved in the Bolivian economy and the acknowledge of all forms of production, such as the ones that still persists in rural areas among the indigenous people and that were not taken into account until now. As the CPE mandates, the State must encourage the communitarian economy with technological, financial support and should also integrate the three aforementioned players. STATE - Promoter - Organizer - Redistributer PRIVATE - Employment generator - Generator of production and services - Strengthening of economic independence ECONOMIC GROWTH WITH INCOME REDISTRIBUTION SOCIAL COOPERATIVE - Generator of production and employment - Principles of solidary work and cooperation Role of the State Promote the integration of di erent economic forms of production, aiming to achieve economic and social development COMMUNITARY - Generator of production and employment - Principles of solidary work and and cooperation PLURAL ECONOMY Association of the individual interes and the collective living well