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Timing Market Reform: The Politics of Social State Reform in Uruguay (II)

Fernando Filgueira & Carlos Filgueira
A competitive political system, an autonomous trade union movement, and extended forms of clientelism crafted a system that allowed for "voice" from the people to form and express itself strongly regarding the definition and administration of public goods and collective and individual rights

A brief history of the Uruguayan Social State

i. The model country: 1900-1930

The first welfare state of Latin America
(Pendle, 1952), the social laboratory of the world and a utopian country (Hanson 1938) were terms used to describe Uruguay by outsiders who looked at our systems of social rights and social programs. Such titles, if somewhat exaggerated, had a base in reality.

Between 1904 and 1933 the country witnessed one of the most ambitious peaceful transformational projects any country has ever had. The final product was of course much more modest. Yet, in historical perspective, these changes still have to be considered monumental.

These changes refer among other things to the emergence a consolidation of a complex system of social policies which in time would constitute a welfare regime. Between 1904 and 1931, social expenditure almost tripled, social security coverage expanded significantly, primary education, free and obligatory, also grew in coverage alongside secondary education
(Vanger, 1980). Health protection received major impulses. Charity and private forms of health care, gave way to an important development of public health institutions.

The individual and collective rights of workers were also part of the achievement of this period. The English week, the eight hour day, working conditions, regulation of child and female labor, and a very tolerant stance on union organization and rights of strike, contributed to shape a country in which labor-capital relations looked more like Europe than Latin America. A major shortcoming of this first impulse was the absolute absence of rights and of a regulatory role of the state regarding the countryside.

Rural workers did not receive most of the benefits described above, and not until the fifties were they granted -and only to a limited extent- some of the individual and collective rights that urban workers -and especially workers in Montevideo- enjoyed formally or de-facto since the early 20th century.

Yet it is also true, that Uruguay urbanized early, with a strong emphasis in Montevideo, so the benefits of social state development actually reached a majority of Uruguayans. An additional fact that attempted against the egalitarian dimension of the social state, was the stratification of the social security system. In this system the most powerful groups had earlier access to benefits, a wider range of coverage and a better quality than less powerful groups
(Mesa Lago, 1985; Papadópulos, 1990).

Maybe, even more important than how much was done in these thirty years, is how it was done. The political fabric of modern Uruguay is inextricably linked to the expansion of the state apparatus in general and to the emergence and development of the modern social state.

A political urban elite was the main responsible for the development of the social state. By gaining control over the state and the monopoly of coercion that comes with it, these elites crafted a tense pact with the agrarian elites by which property rights were untouched, but resources were extracted to finance the booming state. The process of state building and society crafting that these political elites carried out, shaped a socio-political system that made Uruguay rather unique in the Latin American scenario.

On the one hand these years saw the emergence and expansion of mass electoral politics, in which the urban elites grouped in the Colorado party engaged in very close competitive elections with the rural based conservative-popular party, the nationalists.

Secondly, the trade union movement and the workers capacity to organize which was encouraged or at least highly tolerated by the colorados, never came under the corporatist control of the state or of the Colorado party. Batllismo, the modernizing hegemonic and leading elites of the Colorado party, purposefully avoided the emergence of corporatists structures of control.

The trade union movement was thus born with the foundational blueprint of an autonomous corporation, with a leftist ideology and a strong sense of class identity. Thirdly, the political elites consolidated themselves while the state was being built. A process of partisan political colonization of the state took place, and a form of extended clientelism, became a third avenue, through which citizens could and did demand state protection and benefits.

A competitive political system, an autonomous trade union movement, and extended forms of clientelism crafted a system that allowed for "voice" from the people to form and express itself strongly regarding the definition and administration of public goods and collective and individual rights. This basic political matrix, with some relevant variations we shall discuss ahead, is still present today, and will, as we shall also see, become a critical element to understand the recent process of structural reform and social state reform.

ii. A joint venture: 1930s-1940s.

By the late 1920s the same industrial elites that had been shaped by batllismo felt that the social program of this political group was going to far and negativeley affected its interest. Allied with the landed upper class they an anti-batllista option both within the colorado party and in the blanco party. They were defeated electorally, but the succeded politically in dividing batllismo and gaining its more moderate leaders to its political program.

In 1933, following the economic world crises, Terra, an elected man of Batllismo, performed a coup d´etat and brought in as a partner in the deal the majority of the Blanco party. Maybe this is the most important fact of this period: the institutionalization of a bipartisan system of coparticipation, and the fact that coparticipation allowed from there on for the blancos to share the state resources as means of political exchange with the citizenship.

The end result, especially once democracy was regained, was to increase the competitiveness of the political system, even if the origin of the coup has been interpreted as a reactionary move away from social rights and democratic competition.

While the terrista dictatorship lasted, though, many aspects of the social state came to a halt. In effect, policies sought to limit its expansion in services and quality, and to refrain from expanding social expenditure -at least at the rate it had done in the past. Furthermore, additional labor laws targeting the rights of the workers went back to its files, and attempts at corporatist control of the citizenship were undertaken though without success. Repressive measures towards the labor movement were also an important part of the new political package.

Yet it is also true, that a number of changes introduced in the constitution of 1933, actually, in the letter, expanded the recognition of social rights as universal, and explicitly recognized workers right to strike and organize. Also health care showed -through important reforms to the private and public system and a number of remedial social policies for times of crises
(subsidized foodstuff, public kitchens, infant and maternal preventive care and services)-, an important development. Furthermore, anticiclical policies, especially early retirement policies for women were created to ease pressure on the labor market. Yet these retirement policies did not disappear after the crises was over, rather they expanded allowing for early retirement of many categories of workers.

This mix of corporatism, falangism, and liberal residuals, were probably meant at shaping some form of regulated social and political citizenship
(Dos Santos, 1979). In the end, and with the return to democracy, they contributed to the expansion of rights and entitlements. The stage was ready for the "Uruguay feliz".

iii. A time of plenty: 1940s-1960s

In 1942 Uruguay returned to democracy. Electoral politics, renewed trade union vigor, and the continuation of clientelistic practices, allied with and excellent economic situation, pushed the Uruguayan social state to maturity. The state following a trend that had never really stopped since the 1930s, granted more pensions, absorbed more workers, defined more and larger labor rights and expanded public health coverage. Health care also increased notoriously led by the growth and expansion of mutual aid societies, originally linked to early immigration colonies during the twenties and thirties, but geared towards the middle and urban working classes as these groups became predominant in the social structure.


Evolution of State Employees and Retired Persons (in thousands)

   Civil Servants Retired and pensioned persons
 1936 80  70
 1955 180 200
 1961 220 280 
 1969 260 430
 1977 275 610
Source: Filgueira, F. from various sources.

Two other important reforms have to be mentioned. On the one hand, the program of child benefits for all families known as "asignaciones familiares" (family allowance) was created. On the other legal status was given to the trade union movement as the legitimate representative of all workers in the tripartite arena of labor capital relation called the "consejos de salarios" (wage councils).

Finally unemployment insurance, while already in place, increased significantly in those years and in years to come, both in coverage, and to a more limited extent in quality. These two reforms and the expansion of unemployment coverage, moved Uruguay closer to mature welfare regimes of the fifties and sixties in Europe. While, the social state, remained a highly stratified system of services and benefits, coverage had in effect become almost universal, and the range of protection, indeed, large.

iv. Denial: 1960s-1970s.

Uruguay's international economic position suffered gravely with the end of the Korean war affecting the demand for meat and wool. Imports, in the form of capital goods and intermediate goods, steadily increased costs. Uruguay sold less and cheaper, and bought more and dearer. The landed elites, critical, but usually tolerant, of this project of model country, financed to a large extent with their resources, moved to defend their interests.

The Blanco party, in 1958, won a national election for the first time in this century. Rural elites could not just veto radical reform, they could undo the mode of development and the urban pumping machine that Batllismo had created. Reality proved more stubborn. The national party that came to power was, after 30 years of coparticipation with the colorados in the state, a cadre of professional politicians, not the delivery boy of the rural elites. The political class, both Colorados and Blancos, did not want to accept the new limits to redistribution and state expansion.

The social state continued to grow, and new benefits continued to be granted
(see table 3). One important difference was who shouldered the cost of these further expansion without resources. While between 1940 and 1960 genuine resources from revenue (or savings) financed the social state -not without some deficit, after 1960- money printing, international debt and devaluation were the major forms of social currency that covered the increasing gap between revenues and expenditure.

This was further complicated by the strategy of the Blanco administration to ease the tax burden on exporters and cattle ranchers by suppressing some of the taxes and by tinkering with the exchange rate. The end result, was steady process of inflationary growth, that destroyed the real value of incomes, pensions and other monetary benefits, and transformed the monetary resources of social sector administration into half or less of their value.


Evolution of wages (1957: 100) and Average Retirement Benefits (1955: 100)

   Index of Wages Index of Retirement Benefits
 1963  81  95
 1965  76 (a)  83
 1967  --  54
 1969  52  52
 1971  60 (b)  67
 1973  51 (c)  49
Source: Filgueira F (1995) for wages; Papadópulos (1992) for pensions. (a) 1966; (b) 1972; (c) 1975

Let us be clear, services continued to be provided and monetary benefits given, coverage continued to expand, but quality suffered. The overall institutional design of the social state was left untouched, and while politicians hoped for economic recovery, the landed elite, the trade unions and the urban entrepreneurs handed the blame to each other or to the political system.

At the same time, they all played the game of denial which assumed the form of the inflationary game
(differential indexation criteria for the prices of labor, financial and commodity markets and social benefits for different pressure groups) in which those with the least structural power suffered the most.

v. Shock: closing communication: 1973-1985.

In 1973 another Colorado president carried out a coup d´etat. In 1976, the military as an institution took over and governed until march of 1985. The military dictatorship was a radical response to the political system incapacity to restructure the developmental model and the state in order to cope with a new context of scarcity. The social state was also one of the unsolved problems of the denial period that the military had to confront.

The most important reform concerning the social state was the centralization and rationalization of the social security system. Increasing the age of retirement, unifying different categories of retired workers and limiting duplication of benefits, constituted the main instruments to recover some of the equilibrium lost in the previous fifteen years. Furthermore, pensions continued to loose quality, as indexation criteria allowed for inflation to lower its real value.

Education was also affected. The previously autonomous university was taken over by the military government, and the semi autonomous structures of primary and secondary public education were dismantled and reorganized under the control of the executive.

Regarding health, while quality decreased because of financial problems in mutual aid societies, and because state expenditure also decreased, coverage did not. Also important preventive mass vaccination campaigns had a positive effect on infant mortality and children's basic health.
Overall we can say that social expenditure declined, services and benefits deteriorated in terms of quality, yet coverage remained high, and in some cases even increased.


Social Expenditure as Percentage of GDP

   1972 (a)  1975  1980 (a)  1984
Total Expenditure   15.7  14.1  14.0  13.6
Education  2.3  2.6  1.9  1.4
Health 1.1    0.9  1.1  0.8
Social Security 12.8  10.4  10.6  11.2
Other  0.2  0.2  0.2  0.2
Source: Davrieux, 1987. (a) These years do not add up exactly. In some cases for sectors the average between two contiguous years were considered.

Most importantly the basic statist, universal and redistributional design of the social state was not altered. As the country returned to democracy, the old Uruguayan social state, was in its basic form untouched, though harshly deteriorated.

Uruguay returned to democracy, and this restoration, brought with it the hopes of a return to the Uruguay Feliz. Soon the country would understand that such an option was neither possible nor desirable. Among the tasks ahead laid the huge challenge of reforming the Uruguayan social state.

The menu included a recycled version of the denial period we have depicted and the liberal oriented model that was forming in the wings of the MLA´s and neoliberal minded reformers. Uruguay, with no small sacrifice, chose neither of these options. What model seems to take shape in the horizon, and why and how that was done is the topic of the following pages.





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