Good Jobs and Social Services

How Costa Rica achieved the elusive double incorporation

D. Sánchez Ancochea, Kenneth A. Loparo, Kenneth A. Loparo, Juliana Martínez Franzoni, Diego Sánchez Ancochea

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781137308412
• eBook ISBN: 9781137308429
• Topic: Business
• Subtopic: Business General
• Index: Business

Few countries have achieved social development, which requires simultaneously securing market and social incorporation (good jobs and access to social services). This book reviews Costa Rica's experience as one of the few successful cases of double incorporation in the periphery.

1

A Country That Tamed an Elusive Challenge

1.1 The elusive challenge of the double incorporation

In the path-breaking, 2010 flagship report, the United Nations Institute for Social Development (UNRISD) argues that countries “that have successfully reduced poverty in relatively short periods of time had purposeful growth-oriented and welfare-enhancing political systems” (UNRISD, 2010: 6). The report stresses the need to combine a rapid expansion of well-paid formal jobs with a more universal and generous social system. While this may indeed be desirable, it is unclear that many countries in the periphery have ever achieved both simultaneously. Under East Asia’s developmental success, for example, economic growth and structural change were impressive but the expansion of social programmes independent from market participation we address below, was not.

To systematically explore the double process of job creation and the expansion of social services, we draw on the concepts of market and social incorporation. Market incorporation refers to people’s participation in the cash nexus, which requires the creation of a sufficient number of formal, well-paid jobs (private and public). Social incorporation refers to people securing their well-being independently of the cash nexus. If governments want to increase the well-being of a majority of the population living in a country, they should promote this double incorporation simultaneously. However, market and social incorporation are analytically independent processes that need not take place hand in hand: countries may secure social incorporation by decoupling it from people’s participation in the labour market. By the same token, countries may seek to secure market incorporation as the primary means for people to individually cope with social risks.

Let us explain in more detail what we mean by incorporation. According to the 1913 edition of Webster’s dictionary, incorporation refers to becoming a member of a larger body already in existence. In here, we refer to people’s participation over a long period of time in two key institutions: formal labour markets and public social services. Notice that our notion of double incorporation is normative: we do not mean here just any participation in labour markets or any access to social services, as the process of urbanization and the creation of markets of social services such as healthcare and education bring along. Instead, we are interested in a specific kind of participation, one that succeeds in providing a “floor” of cash, labour and social protection and services for most.

In using the term incorporation, we are preceded by very fruitful research – in the social sciences in general and in the study of Latin America in particular. In their already classic work, Ruth and David Collier (1991) explain how incorporation, in their case into the political arena, replaced the repression of the working class as a political actor. As a result, across Latin America during the first half of the twentieth century, this emerging class entered politics. The specific pattern of incorporation (state or party-led, whether by traditional, populist or radical parties), accounted for regime change and had long-term repercussions, reaching the democratic breakdowns of the 1970s, when exclusion replaced incorporation.

Luis Reygadas and Fernando Filgueira (2010) borrow the term and follow the earlier discussion to review recent events. They argue that Latin America currently faces a second social incorporation crisis and that new policy efforts are attempting to address it. Both are equivalent to the first incorporation crisis addressed by Collier and Collier. In the present day, however, those badly in need of incorporation are not the working class but the informal and the self-employed. It is precisely those millions of Latin Americans lacking market and social incorporation who demand better jobs and minimum services. The wave of left and left-of-centre political parties replacing right and right-of centre governments is, they argue, an indication of unattended demands for social incorporation.

This book discusses Costa Rica’s experience as one of the most successful in securing the double incorporation over the last six decades among developing countries. Unemployment and underemployment in Costa Rica were low, the formal sector grew steadily, and universal social programmes expanded between the 1950s and the early 1980s. By the early 1980s, most Costa Ricans had access to relatively well-paid jobs and to high quality healthcare, education and pensions (Sandbrook et al., 2007).

Costa Rica’s case is also relevant because since the 1980s it has experimented growing tensions and struggles to maintain the double incorporation. During the last three decades, Costa Rica’s economic policy regime has experienced contradictory transformations, particularly in its economic landscape. On the one hand, the country has built more dynamic comparative advantages. On the other hand, the number of informal, poorly paid jobs (that is, inappropriate market incorporation) has expanded rapidly. The social policy regime has remained more stable in terms of guiding principles and formal design, but the quality of services has diminished and the presence of private services has increased. Costa Rica’s overall performance is still more satisfactory than that of many other developing countries – including those that embraced neoliberalism more enthusiastically – but sustaining the country’s past record is proving harder than ever.

How has Costa Rica achieved its unique success in accomplishing the double incorporation? Why has the social policy regime been more resilient than the economic regime in recent times? What lessons can other small developing countries learn from Costa Rica? This book addresses these questions by looking at the policy regimes adopted between 1950 and 1980, during Costa Rica’s period of expanding incorporation (which Solís (1992) and Rovira (2001) addressed as the “Golden Age”), and examining the changes the country has undergone during the more recent period we refer to as stagnant incorporation. We first describe policies from both periods and then explore the underlying factors that determined those policies.

The economic policy regime involves a set of policies and institutions that are relatively stable, influencing the characteristics of the economic structure and thus the process of market incorporation. An economic policy regime may be driven by various primary goals (like growth or distribution) and rely on various funding sources. By social policy regime we refer to the set of policies and institutions that shape social incorporation through transfers and services and are relatively autonomous from people’s participation in the economy. These may rely on various guiding principles to allocate resources (such as needs or citizenship); types of programmes (based on transfers or services); means for services delivery (whether public, private or mixed); levels of benefits (more or less generous) among others. Policies and institutions interact in complex ways that may change over time.

In explaining why the Costa Rican state adopted these policies, we acknowledge the importance of long-term, historical factors and also the role of democracy. Yet we consider and attach more importance to three central conditions. Without these, neither long-term factors nor a democratic political regime would have resulted in double incorporation. These factors are: (a) the nature of Costa Rica’s emerging elite and its changes over time: from a group with a highly unified set of interests around state expansion to one with growing fragmentation, moving away from being closely intertwined with the public bureaucracy to experiencing a growing split; (b) the ideas internationally available from which domestic elites drew their own agendas; and (c) the role of policy legacies the period of stagnant incorporation inherited from the previous period. Below, this introductory chapter fleshes out these ideas. We start by defining the notions of market and social incorporation and their contribution to reduced poverty and inequality. In section 1.3 we argue that most developing countries (even successful countries like South Korea, Taiwan and Singapore in East Asia) have never fully achieved the double incorporation and in section 1.4 we outline why we consider Costa Rica an exceptional case. Section 1.5 briefly reviews the literature on the role of the state in market and social incorporation, arguing that few studies consider both processes simultaneously and offer our own explanation of Costa Rica’s trajectory. The chapter concludes with a brief summary of the rest of the book and a discussion of its main contributions.

1.2 Income inequality, poverty and the challenge of the double incorporation

Since the 1980s and until very recently, much of the mainstream literature on poverty and inequality focused on the need to improve social conditions through community-based projects and redistribution policies and did not pay sufficient attention to the labour market. The Millennium Development Goals, for example, had employment as a target but not as a primary goal and the literature on multidimensional poverty has tended to downplay the role of income generation. This is unfortunate because in any market economy, good jobs do represent the fastest and most stable way out of poverty. As Alice Amsden puts it in a provocative 2010 article “A job is a ticket out of misery and into the middle class… [For example] [i]n all of India’s manufacturing industries except one (‘machine repair’), the ‘formal’ sector, where paid employment predominates, is almost three times more productive than the ‘informal’ sector, where most anti-poverty money goes” (Amsden, 2010: 58). Yet many developing countries have failed to promote employment-creating growth paths. In many parts of the world the informal economy still accounts for half of the total gross domestic product and low-productivity services and subsistence agriculture remain employers of last resort. The lack of incorporation to formal employment leaves workers with low wages, vulnerable labour conditions and limited access to skill upgrading and social rights.

The relationship between well-paid employment and income inequality is also clear, albeit complex. In Latin America, for example, high levels of inequality can be partly explained by the existence of segmented labour markets in which a selected minority has access to good jobs in manufacturing or modern services while a majority is condemned to the informal sector. Good jobs, however, may not be enough to reduce income inequality. We can easily envision scenarios under which new formal jobs expand rapidly but wages of skilled workers and profits grow as fast or even faster, therefore leading to less equity. Exclusive dependence on market income will also leave low- and middle-income groups exposed to unpredictable and costly risks (for example, accidents and sickness), to risks that are hard to cope with on an individual basis, such as aging and disability, and therefore to sharp reductions in living standards. This is why social incorporation through social services is also important.

In summary, the reduction of poverty and inequality over the long run depends simultaneously upon incorporation in the market and protection from the market. People need to secure a stable income to increase their level of consumption and meet household demands; market incorporation does not simply refer to having a job but to the successful creation of well-paid, formal jobs for a majority of the population. Under this definition people in informal and/or badly paid jobs have not been successfully incorporated in the labour market. Economic growth is a necessary condition for market incorporation but must go hand in hand with structural change and attention to job creation as an objective in and of itself.

At the same time, people also long for certainties that cannot be easily purchased on an individual basis and thus involve access to social income as a matter of right, regardless of market participation. The latter is important for a number of reasons. At any given point in time most people do not participate directly in the market economy either because they are too young, too old, sick or disabled. Economic cycles are also unstable: they come and go and people need to have safety nets as a buffer against economic uncertainty. Incorporation into the market economy requires the formation of “human capital”, something most people may not be able to afford privately and/or are not always provided effectively by the market. Last but not least, each country explicitly or implicitly sets a certain “floor” of social rights, whether thin or thick, that cannot be left up to market forces or be solely tied to firm-based benefits.

Social incorporation requires both basic social services and social protection. Basic social services are designed to create basic skills and capacities; social protection includes provisions to cope with sickness, old age and other events that enable people to engage in income-generating activities. The former comprises basic education, primary healthcare (including reproductive health, population and nutrition programmes), and potable water supply and sanitation (Ganuza et al., 1999). The latter involves contributory and non-contributory pensions and health insurance. A large body of literature argues that the delivery of basic social services and social protection should follow universal principles to maximize its positive effect on social incorporation. This well-established scholarly work defines universalism in terms of high coverage, assuring that everyone benefits from high quality and generous income transfers and services (as understood in that particular context), under unified, nation-wide systems (Esping-Andersen, 1990; Huber and Stephens, 2001; Korpi, 1983).

According to UNRISD (2010: 139), “the more universal a programme becomes in terms of coverage, rules of access and membership, and adequacy of benefits, the greater the potential for redistribution, risk pooling, cross-subsidization, efficiency gains and quality control.” Universalism has at least three advantages over other approaches to social delivery. First, whether it is schooling or healthcare, individuals from all income levels and personal characteristics end up sharing a similar treatment based on their condition as citizens. Second, the middle class is more likely to support services they benefit from – and the social spending associated with these services – whether these services are tailored for specific groups or the population at large. When the middle class supports universal policies their mobilization capacity ends up benefiting low-income groups as well. Third, this cross-class alliance is helpful not only to broaden access to state policy but also to guarantee good quality. Thus, the resulting expansion of transfers and services in health and education would have a substantial redistributive effect, thus creating a virtuous circle for social incorporation (Huber, 2003; Mkandawire, 2006).¹

In many instances, the expansion of universal policies is not enough to guarantee access by low-income groups. Those most vulnerable may require affirmative action to assure their effective incorporation into universal transfers and services. For instance, children from low-income families may need uniforms, transportation and complementary nutrition to benefit fully from free and high-quality schools. Whether tied to universal measures or as stand-alone programmes, reaching the previously unprotected population has been a key role of social assistance at large. As we will see, Costa Rica succeeded in combining universal social policies and more targeted anti-poverty programmes as early as the 1970s – much before the current debate on conditional cash transfers emerged.

1.3 Failures to secure double incorporation

Beginning in the 1930s and accelerating after the Second World War, many developing countries experienced significant processes of transformation. Driven by a rapid process of urbanization and increasing state intervention, new manufacturing and service jobs were created and new social institutions were founded, particularly in the largest Latin American countries and in some East Asian growth miracles. In an influential book on Latin America’s socio-economic development, Draibe and Riesco (2007; 2009) address what they refer to as “state developmentalism” and its success. In their view, “a number of states explicitly assumed the twin challenges of bringing both economic and social progress to societies that were mostly agrarian… Developmentalism shows quite impressive achievements on both counts in many countries. By the 1980s, many states had built basic institutions, infrastructure and industries. Most importantly, they were remarkably active in changing the region’s social structures” (Draibe and Riesco, 2009: 332). State developmentalism was even more successful in South Korea and other East Asian countries where a rapid process of structural change and economic growth moved countries out of poverty.

The importance of this process of rapid urbanization and social change and its impact on market and social incorporation in large parts of the developing world is unquestionable. In particular, there is no doubt that the East Asian newly industrializing countries (South Korea, Taiwan, Hong Kong and Singapore) achieved impressive outcomes in terms of market incorporation driven by rapid economic expansion. All four countrie...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• List of Acronyms
• 1 A Country That Tamed an Elusive Challenge
• 2 The Economic Policy Regime and the Two Phases of Market Incorporation
• 3 The Social Policy Regime: Creation, Expansion and Resilience
• 4 The State as the Central Actor: Elites, Ideas and Legacies
• 5 Conclusion: What Can We Learn from the Costa Rican Case?
• Notes
• References
• Index