Humanity is currently facing some of the most profound changes we have seen in generations, presenting us with challenges and opportunities to reassess long-held concepts, structures, and ways of being. One of the most debated topics of the past few decades has been globalisation, which has followed a particular path shaped by the interests of a global order that was already shifting prior to the COVID-19 pandemic. The question now is, with the accelerated changes taking place across the world, what will this mean for globalisation?
To address this extremely critical and timely topic, the DOC has launched a series of expert articles on the ‘Future of globalisation’. We are committed to providing an open platform for diverse views and in the spirit of open dialogue, the series will cover a range of contrasting perspectives. Following an initial contribution from Huailiang Li, representing one perspective from China, this second contribution from Pablo Ava shares a view from Latin America.
The Covid-19 outbreak in the Latin American region began on 26 February, with a confirmed case in São Paulo, Brazil; in the subsequent weeks, an increasing number of cases became known around the region. Governments largely reacted swiftly and preventatively, taking different measures to protect their citizens and contain the spread of the virus. Latin American and Caribbean countries in the region face particular regional challenges; for example, less expansive and sophisticated healthcare systems and social safety nets, begetting the need for a preventative response.
Nothing will be the same after Covid-19, either in Latin America and the Caribbean or globally. We will see the emergence of a new political agenda and a new framework for political-economic and social policies, all under significant economic tension. Nation-states will need to adapt quickly to the challenges arising from the new reality.
The future of economics and social scenarios
The crisis has forced governments in the region to revise levels of public investment in health – for now, close to 4% of GDP compared to an average of 6.6% for OECD countries – and to review quality-monitoring systems for the sector. In most countries, households cover a substantial portion of total health expenditure from their own resources. Long-term strategies must include improving the resilience of health systems as well as their capacity to react to future crises.
Governments have put in place targeted policies to support vulnerable SMEs, including specific financing lines; low-cost or zero-interest loans; the payment of salaries through public funds; the postponement of various tax payments and social security contributions; and the postponement of loan repayments. Furthermore, countries have taken measures to lighten the financial and procedural burden of personal tax, public utility, credit cards, and loan and mortgage payments.
Figure 1: Economic packages in selected LAC countries (% of GDP)
The future of policy for politics, economics, and society will be driven by the interplay of socio-economic developments and governance responses. Several aspects of these are outlined below.
Economy and society
The informal economy and the lack of universal safety nets
Countries with 30-80% of their workforce employed informally, i.e., the majority of countries in Latin America and the Caribbean, will see informal and low-skilled workers challenged by reduced hours and job losses. With no possibility of receiving unemployment benefits, this creates a ‘work or lose your income’ dilemma for many people.
As the crisis deepens and spreads, resource-scarcity and competition will increase. Richer communities will be able to pay for better treatment in private hospitals. They will also be more able to practice social distancing, take sick leave, and/or continue to receive a salary.
We will probably see a major renewal of tax pacts and models of tax escalation. In a ‘new deal’ scenario, the idea of a new system of wealth distribution will be central.
Vulnerable indigenous and migrant populations
Indigenous populations in countries like Peru, Ecuador, Bolivia, and to a lesser extent Mexico, are very vulnerable to pandemics. The Covid-19 crisis is also hitting Latin America in the midst of its largest migration crisis in history.
Migration has been on hold due to state restrictions on travel. Once measures are lifted, we will see new and increased migration flows determined by the push and pull of respective national economic scenarios, with crisis impact likely to be spread unevenly.
Governance and politics
Although the public is currently demonstrating real solidarity in confronting the pandemic, just months ago, many countries in the region experienced a wave of mass protests driven by deep social discontent.
The frustrated aspirations of an emerging but vulnerable middle class were clear as the risk of falling into poverty lingers. The crisis could exacerbate these problems and bring new political leaders and demands to the fore. Political systems should adapt through a ‘new deal’ approach or they will face permanent tensions and crises.
A new political covenant
A redesign of the state and its policies will therefore be necessary. The outcome of the sanitary crisis will have the effect of a plebiscite, shaping whether people support ruling-party decisions or not. The welfare state as we knew it is going to be recast based on the necessity of a new economic and social pact. The new covenant should include a new tax framework – this may lead to social tensions.
The tension between liberalism and populism for Covid-19 social control
The Covid-19 crisis is testing populist regimes and democratic governments – some of which are relatively young and still consolidating – alike.
Tensions are driven by deep social discontent, frustrated aspirations, persistent vulnerability, and growing poverty. Many countries have also set extraordinary crisis measures in place meant to protect citizens, including restricting access to public information and implementing tracking applications. These may be considered normal times of crisis but could endanger civil liberties and the civic space in the long term. Control and accountability mechanisms are needed to regulate such extraordinary measures but there will be tensions with liberal voices regardless.
An open or closed economy
As they face economic crisis, countries will have to decide between growth models based on local or export-based consumption.
The future integration process
Latin American and Caribbean trade integration is under stress. After quarantine, countries will have to decide if they return to the numerous economic and political processes that make up the path of multilateral integration or if they pursue more unilateral routes.
Multilateralism, prosperity, and the effects of the China-US trade war
Multilateralism at the global level was already damaged before Covid-19 by the failures of the latest rounds of WTO negotiations. The pandemic has seen further suffering from multilateral weaknesses with little or no follow-up on WHO recommendations.
Latin American and Caribbean countries will face increasing complexity after the pandemic if the confrontation between China and the US escalates. Both countries have interests in the region so neutrality will not be possible.
The future for Latin America and the Caribbean is directly linked to the path the global economy will take. State assistance policies for both businesses and individuals involve funding that is currently being provided from local resources. It is possible that in the aftermath of the pandemic, the safety net could be generated through the help of multilateral credit agencies that are able to assist countries in greater economic difficulty, in terms of both production and external debt.