Global Development Institute Blog

Armando Barrientos, Emeritus Professor, Global Development Institute

In response to the impact of Covid-19 on poverty and inequality in the region, ECLAC has called Latin American countries to build a welfare state, described expansively as a “welfare state that, among other things, ensures universal access to health, redistributive taxes, increased productivity, better provision of public goods and services, sustainable management of natural resources and more substantial and diversified public and private investment.”

European welfare states as a reference point?

The post-WWII emergence of welfare states in European countries is a reference point in the development of social policy in low- and middle-income countries. ECLAC’s description of a welfare state points in this direction.

Research and policy discussion of ‘welfare states’ in Latin America often focuses on the ‘welfare’ component – on the kind of social programmes or institutions capable of delivering welfare. But the ‘states’ component is equally important. Welfare states require state institutions to ensure that economic activity is organised to the benefit of society as a whole.

European welfare states were built around a commitment to democratically regulate the private sector to guarantee access to quality public services, jobs, and comprehensive social protection for their populations. This commitment was supported electorally by coalitions of blue- and white-collar workers (a.k.a. working and middle classes respectively).

Their success, especially in the thirty years up to the mid-1970s, explains why they remain a focal point in policy debates in Latin America. Their achievements are only comparable, arguably, with China’s advancement in the last two decades.

Esping-Andersen’s classic three-way typology – Nordic, Central European, and Liberal ideal types – identifies three forms of welfare capitalism. Nordic welfare capitalism is state-centric and emphasises inclusive institutions. Central European welfare capitalism is also inclusive but stratified and family-centric. Liberal welfare capitalism privileges market solutions to social problems with state intervention in a subsidiary role.

The three types of welfare state capitalism show distinctive paths, explained by the shape of the political coalitions behind them. Coalitions of agricultural and industrial workers are behind the universalistic policies of Nordic welfare state capitalism. Religious cleavages in Central Europe, criss-crossing the industrial cleavage, could help explain the stratification of their welfare states. Religious parties could accommodate members of the working and middle classes. The strength of the industrial working-class organisation in English-speaking European countries is thought to have pushed the middle classes to support employers’ and landlords’ preference for low taxation and a subsidiary state, resulting in Liberal welfare state capitalism.

European welfare state types were the outcome of domestic factors, not ideational diffusion.

Which type of welfare state for Latin American countries?

ECLAC has longstanding aspirations to the Nordic universalism. But current Latin American welfare institutions are liberal in orientation.

The social protection funds (fondos de previsión) that emerged in the second half of the 20th century in Latin American countries strongly resembled the stratified, family-centric, institutions in Central European countries. The Bismarckian legacy in the region is notable by its single focus on old age and by its occupational stratification.

Social policy reforms in Latin America since the 1990s – individual retirement accounts and social assistance – signalled a change in orientation. At its core, Liberal welfare state capitalism is defined by a preference for market solutions to social problems (note that the term ‘liberal welfare state’ is an oxymoron). In institutional terms, European liberal welfare states rely on means-tested social assistance, modest universal transfers, and modest occupational insurance. The direction of travel revealed by social policy reforms in Latin America appears to point towards a form of liberal welfare state capitalism. Closer scrutiny, however, indicates significant differences with the European liberal welfare model.

Aside from Chile and Costa Rica, individual retirement plans have not prospered in the region. The 2008 financial crisis led to re-reforms in Argentina and Bolivia turning away from market provision.  Covid-19 has forced governments to allow participants to partially withdraw funds, with implications for the plans long term sustainability.

Budget financed old age transfers and conditional income transfers are not the residual support for the unemployed envisaged in the European context. Instead, they are large-scale programmes reaching between a quarter and a third of the population in the region. In Latin America, social assistance is not primarily about unemployment, but instead about socio-economic status and social investment. Old age transfers do not require recipients to withdraw from the labour market. Rates of labour force participation among conditional income transfer adult recipients are, in most countries, above the population average. Conditional income transfers have explicit social investment objectives, in addition to consumption subsidies.

The outcome of the reforms is a dual institutional pattern, with occupational insurance and individual retirement plans for better off workers and social assistance for low-income workers.

To sum up, the direction of travel is away from the Bismarckian legacy – the Central European stratified and family-centric type of welfare state capitalism. There are few indications of any movement towards Nordic universalism. Social policy reforms suggest movement towards sui generis, but liberal, welfare institutions.


Top photo taken in Valparaíso, Chile by Ignacio Amenábar on Unsplash

Note:  This article gives the views of the author/academic featured and does not represent the views of the Global Development Institute as a whole.