By Hong R. Zhang Durandal, Masters in Public Policy student, Harris School of Public Policy
In April 2015, the Bolivian Minister of Economy and Finance Luis Arce Catacora came to the University of Chicago to present a new economic model that Bolivia has developed and put in practice since 2006. He explained the Economic Social Communitarian Productive Model and why it is effective in Bolivia. In this system, the state becomes the largest investor in the economy and it focuses on developing a strong domestic demand while strengthening the Bolivian currency.
Since the implementation of this economic system, the Bolivian economy has been growing constantly and it has reduced extreme poverty by more than 10%. Arce said, “Bolivia reduced extreme poverty from 32% to 18%, we would like to lower it to a similar rate as Ecuador which is only 12%.” At the same time he also mentioned that the unemployment rate declined from 8.5% to 4% and that this was one of the lowest in the region. There is no doubt that the Bolivian economy has strengthened since the implementation of this new economic system but it is unclear if this boom was solely due to the rise in price of raw materials or other factors. The system is still young compared to other more robust and well tested systems around the world. The exportation of natural resources still is the backbone of the Bolivian economy but with an emphasis on reinvesting in other industries, industrializing raw materials, and the redistribution of wealth among the ones that need it the most. Let’s explore the actual facts and what this new economic system has been able to do for the Bolivian people.
Among the most notable achievements of Evo Morales presidency under this new economic system have been: improvement of education availability in rural areas, creation of new infrastructure of parks and soccer fields, improvement of public transportation, and the launching of the first Bolivian satellite to bring free Internet to the most remote areas in the country. These high capital investments were possible due to the high prices of oil during the first five years of presidency of Evo Morales. Yasimientos Petroliferos Fiscales Bolivianos (YPFB), the national oil extraction and producing agency, has been trying to increase its extraction of oil and expand into refining some types of oils to later export to neighboring countries like Paraguay, Brazil, and Argentina. The most successful investment in transportation infrastructure has been the “teleferico” (cable car) system in the capital city La Paz. This infrastructure, which is the largest urban cable car in the world, connects more than 2 million people from two adjacent cities, La Paz and El Alto, and ascends to more than 16,500 feet. Previously a great number of people spent more than one third of their incomes and 2–3 hours commuting using various public transportation methods; with the teleferico commuters have cut their traveling time to 20 minutes from one city to the other. The system can transport 18,000 people per hour over 11 kilometers. The government has plans to develop more transportation infrastructures like metro trains for Santa Cruz and Cochabamba and other major cities.
The Morales administration has used extensively policies of cash transfers from profits from the teleferico, YPFB, and other government income to fund pensions for the elderly, school funds for children, breakfast funds, and the “Doble Aguinaldo.” Through this egalitarian approach the Bolivian government works extensively to close the inequality gap between the wealthy and the poor and achieve the most equal wellbeing and economic welfare among its citizens. With some programs the government has achieved great efficiencies like providing funds for children and the elderly. However, the system fails when it tries to apply this egalitarian approach to the entire Bolivian population. The private sector has been hurt because of the “Doble Aguinaldo,” which forces private business to pay a double bonus at the end of the year to all its employees. This translates to a triple salary payment for the month of December. Many businesses went bankrupt due to this egalitarian policy under Bolivia’s new economic model. As in any transfer policy, resources have to be taken from somewhere to be given to others. The Economic Social Communitarian Productive Model has great potential to reduce inequality in the country by making everyone almost equal in wealth and wellbeing, but is it the right path for an economic model that can sustain generations to come and solve 21st century economic global challenges?
To conclude, Minister Arce Catacora pointed out that Bolivia can develop to become one of the major energy players in Latin America through the industrialization of fossil fuels, exports of lithium, and the development of hydroelectric plans and renewable energy. Bolivia needs to capitalize its competitive advantage in its abundancy of energy resources and leverage them to create economic stability for years to come.
Minister Arce Catacora made a compelling case on his new economic system to many scholars and students at the University of Chicago but much more needs to be studied on the Economic Social Communitarian Productive Model to call it a successful reform. Bolivia has been able to reshape itself and come out of an era of decades of political instability, extreme poverty, and inequality. Scholarship and research from the University of Chicago can shed light of the merits and challenges of this new economic system. Thanks in part to the Center for Latin American Studies and the Harris School of Public Policy, the school has opened its doors to become the most diverse University in terms of ideas, discussions, and constructive debate.
The contents of this blog do not necessarily reflect the views of the Center for Latin American Studies or the University of Chicago.