Social Frustration and Budgetary Restrictions: Rethinking the Public Agenda in Post-Pandemic

Abstract

Using political economy analysis, this document aims at a better understanding of the recent juncture of global social protests expressing against the establishment and the international trade agreements. Brexit and America-First form part of apparent solutions exploiting political nationalism during 2017-2020. We use signal-to-noise ratio principles to characterize the pro-market status-quo of the United States and the high State interventionism in Europe and then we assess the evolution of the “Welfare State” in those regions. A key element in this characterization is the consolidation of the “middle-class” and its motivational roots, contrasting those driven by “economic progress” Vs. “citizenship values”. The latter tends to better solidify the stance of the middle class, while the former tends to be short-lived, as apparently has occurred in Latin America.

We offer a narrative interpretation about the “social elevator” in Latin America, operating from poor to middle class, over 1995-2020, and provide a snap-shot of recent events, including Chile, Mexico, Brazil, Peru, and Colombia. After significant social progress in lowering the portion of population under-poverty rates from 50% down to 30% during 1995-2014, the period after the super-cycle of energy-mining commodities (2015-2020) has shown stagnation in social progress due to low real-GDP growth, escalating unemployment, and fiscal restraints in Latin America. Given the negative effects of the covid-19 pandemic, the expected recovery of 2020-2021 will be even more complex to achieve. Very likely, world weighted GDP-growth will contract -4% in 2020 (Vs. an expected 3% before pandemic), but world´s growth could rebound to +5% in 2021 under a “V”-shape recovery. However, LATAM will be stalled in a 2% growth recovery in 2021 after a contraction close to -6% in 2020.

Finally, we provide a minimum agenda of structural reforms dealing with quality of public schools, better deployment of infrastructure to deepen the gains from international trade, and additional budgetary allocations pro-poor to improve income distribution indicators. This public agenda needs to be complemented by private sector initiatives to properly allocate the scant fiscal resources.