CEPAL Review - Volume 2000, Issue 71, 2000

The author of this article concludes that the quality of the public sector can be assessed only against the role of the State. In general, an efficient public sector should be able to achieve the State’s objectives with the minimum degree of distortion of the market, with the lowest burden of taxation on taxpayers, with the smallest number of public employees, and with the lowest absorption of economic resources by the public sector. The public sector must be transparent in its processes and in its outcome. Corruption should have no part in the decisions made by bureaucrats and political leaders, and the resources in the hands of the public sector should be put to a use that maximizes their social rate of return. The quality of the public sector is also important for pursuing the objective of equity, which is now seen as one of the fundamental goals of the State. A high-quality public sector should make possible the pursuit of equity with the lowest costs in terms of efficiency. Finally, the so-called “first generation reforms” do not necessarily improve the quality of the public sector even though they may improve the quality of public policy. The pursuit of “first generation reforms” has, in fact, highlighted the need to improve the quality of the public sector, and for this to occur, “second generation reforms” are necessary.

The purpose of this article is to investigate the determinants of the distribution of income in Latin America, focusing in particular on two questions: one is the relationship between the distribution and income, while the other is the impact of the package of structural economic reforms that have been adopted in Latin America in recent years. Two main conclusions are drawn from the econometric evidence. There appears to be a robust and significant relationship between the distribution and income. It has the inverted U-shape that Kuznets predicted, but this relationship has been shifting in a regressive direction over time. Growth is now a good deal less progressive than it used to be. In the aggregate that means that further growth in Latin America is unlikely to improve the distribution much, if at all, so supplementary measures will have to be taken. Among those suggested by the regressions are the maintenance of low inflation rates and investment in education. Generally speaking, the structural reforms appear to have a regressive effect on distribution, but that effect is small and not very robust statistically. Reforms in different areas have differing effects on equity. Trade reform is regressive in all of our specifications, but it is insignificant in all but the nationwide sample. Tax reform is unambiguously regressive, and opening up the capital account is unambiguously progressive. The results for trade and tax reform and capital account liberalization are the most robust and significant. For the other two reforms –privatization and financial reform– the available data were not good enough to give a clear answer.

Despite tremendous macroeconomic instability, Brazil’s urban income distributions in 1976 and 1996 appear, at first glance, deceptively similar. Mean household income per capita was stagnant, with a minute accumulated growth of 4.3% over the two decades. The Gini coefficient hovered just above 0.59 in both years, and the incidence of poverty (with respect to a poverty line of R$60/month at 1996 prices) was effectively unchanged at 22%. Yet, behind this apparent stability, a powerful combination of labour market, demographic and educational dynamics were at work, one effect of which was to generate a substantial increase in extreme urban poverty. Using a micro-simulation-based decomposition methodology which endogenizes labour incomes, individual occupational choices and education decisions, we show that the distribution of incomes was being affected, on the one hand, by a decline in average returns to both education and experience and by impoverishing changes in the structure of occupations and labour force participation (all of which tended to increase poverty), and on the other hand by an increase in educational endowments across the distribution and a progressive reduction in dependency ratios (both of which tended to reduce poverty).

This article analyses the structural changes in Latin American industry, which speeded up in the 1990s with the consolidation in the region of the external openness programmes, the deregulation of many markets, and the privatization of major sectors of industrial activity which had previously been dominated by State enterprises. The branches of manufacturing which have turned in the best relative performances over the last twenty years are natural resource-based industries producing staple industrial commodities, industries assembling computers, video equipment, television sets or clothing, and the motor industry, which has been given preferential treatment in government economic policy. In contrast, industries producing labour-intensive final goods, those making intensive use of technological knowledge and new product design engineering, or those producing heavy capital goods have been losing relative weight. The pattern of production specialization and the places occupied in world markets for manufactures have clearly been changing, with greater emphasis on utilization of the natural comparative advantages of the region (i.e., its abundant natural resources) or on sectors which have been given special treatment in industrial policy. The article explores the behaviour of the Latin American industrial structure in terms of productivity, comparing it with that of the developed countries. Using the case of the United States as a reference universe, it estimates the labour productivity gap with respect to that country and evaluates the performance of countries and industrial branches in the region as a function of that parameter.

In the new international setting, which is characterized by new technologies that make intensive use of information, globalization of markets, and the increased competitive pressures and uncertainty facing the agents, competitiveness is a systemic phenomenon. The endogenous capabilities of the agents, the degree of development of the environment they operate in and their integration in a production network have become key elements for developing capabilities and creating competitive advantages. It is being asserted more and more frequently that the competitive advantages of countries, regions and agents do not necessarily derive from their factor endowments but can be constructed through the development of endogenous capabilities and linkages with other agents. In the transition from static to dynamic advantages, the capacity to learn –conceived as an interactive process imbuing the whole of society– plays a key role. The present article analyses what the endogenous mechanisms for the creation of capabilities and the conversion of generic knowledge into specific know-how are, and what they depend on, at the level of the individual agents, production networks and the various local environments. Reference is made to the importance attached by economic theory in recent years to the relation between technology and learning processes, especially in the Schumpeterian and evolutionary approaches. The way in which the economic agents learn, transform generic knowledge into specific know-how and link up codified and tacit forms of knowledge is addressed, and finally it is emphasized that these processes are not the result of the natural linear development of production systems but are the consequence of a long evolutionary learning process.

The external trade of a country is closely linked with its geographical location, with the transport services that cover the distance to markets, and the ports through which that trade passes. Recent advances in maritime transport, the growing international economic integration, and the privatization of ports in the countries on the Pacific coast of South America have given rise to expectations that ports could be developed that concentrate both domestic cargo and that of neighbouring countries for its subsequent redistribution: what are known as “hub ports”. The main conclusion of the present study is that the potential for hub ports on the Pacific coast of South America is very limited. In the past, countries tried to prevent the foreign trade of their neighbours from using their ports to gain some kind of commercial benefit. Now, however, the situation has been reversed, and ports compete with each other for the trade of neighbouring countries. In itself, this competition is positive, but the problem is that in many cases it has been raised to a political level which has turned simple competition between ports into international competition between hypothetical future “hub ports”. In view of the low degree of probability that the establishment of such ports on the west coast of South America will be a success, it might be more advisable to seek greater regional coordination of transport policies and of investments in port and land transport infrastructure, in order to promote integration between the countries of the Atlantic and Pacific coasts of South America.

The government of Cuba established a tax regime for micro-enterprises as soon as it legalized the sector in 1993. It was designed to function in a difficult context in which a tax-paying culture did not exist, in which widespread noncompliance was feared, and in which some micro-entrepreneurs’ incomes were high. The tax regime included advance monthly lump-sum payments, a 10% maximum amount of total revenues which could be deducted as costs in calculating taxable income, and an escalating tax schedule. This tax regime has a number of weaknesses which make it inequitable, inefficient and ineffective in revenue generation. The analysis of this essay indicates that the actual incidence of the tax is higher than the official tax scale when actual production costs exceed the maximum allowable 10%, even exceeding 100% in some circumstances. The up-front lumpsum tax payments result in marginal tax rates of 100% for initial levels of revenue, followed by a rate of 0% until a level of taxable income is reached where taxes payable according to the tax scale are equal to the initial lump-sum payment. The tax regime discriminates against micro-enterprises which have costs of purchased inputs in excess of 10% of gross revenues. It is regressive in that the tax rates are higher for lower-income micro-enterprises up to a fairly significant level of true net income. The micro-enterprise sector also faces a more onerous tax regime than the foreign and joint venture sector of the economy. From the standpoint of its impact on the efficiency of resource use, the tax regime restricts the entry of new firms into the sector and forces some out of business or underground, thereby reducing production, raising prices, reducing employment and reducing the generation of income. Finally, to the extent that firms “go underground,” refrain from starting up, go out of business, or evade taxes, the government loses revenue. A number of modifications in the tax regime are suggested in order to overcome its weaknesses. These changes could help the sector to make a more valuable contribution to Cuba in terms of employment and income generation, increased production at lower real costs and prices, and increased tax collection.

This article reviews the literature on employment, wages and the labour markets in the Dominican Republic. Although this will primarily be of interest to economists, it may also be useful to social scientists in general and to those responsible for formulating policies affecting the functioning of the labour market at both the national and the Latin American regional level. The study begins by presenting the main sources of statistical information on labour, after which it focuses on studies on the overall functioning of the Dominican labour market. It then goes on to deal with studies exploring specific labour markets, such as those for microentrepreneurs and women, and the literature on wages. This review reveals that there are few studies carried out with scientific precision and aimed at economic aspects proper: most of the studies are of a descriptive, sociological or multidisciplinary nature. The article concludes with some proposals for possible lines of future research in this field, especially the analysis of the existing labour statistics and the establishment of a suitable system for their collection and dissemination.