The New Economic, Social, Communitary, Productive Model

PLURAL

Monthly publication of the Ministry of Economy and Public Finance economy Year 1 / Nº 1 / September 2011

n How the Model works n ElThe neoliberal model vs. the New Model n The actors of the New Model

www.economíayfinanzas.gob.bo

Ministry of Economy and Public Finance Teléfono: 2203434

Social Communication Unit Edificio Palacio de Comunicaciones - piso 19 Av. Mariscal Santa Cruz Teléfono/Fax: 2364320 La Paz - Bolivia La Paz, September 2011 Pluraleconomy 1 To the reader

he Ministry of Economy and Public Finance presents the first issue of the magazine Plural Economy, a periodical of system- atic dissemination of the thought of people from the University AcademyT who ventured back in the second half years of the 1990s, to begin a journey of reflection – not always understood - towards the design of an economic theory for the replacement of neo liberalism. Such theory is now known under the name New Economic Social Communitarian and Productive Model. This model was implemented since 2006 by the administration of President Evo Morales.

For this purpose, the following pages present interviews to the Min- ister of Economy and Public Finance Mr. Luis Arce, who, in the first instance, talks about the formation of the Grupo Duende (Goblin), in which he and other scholars started the analysis of the neoliberal All the new powers of model imposed in Bolivia in August 1985 with the infamous Decree the State are aimed 21060. at making Bolivia - After other remembrances of the time, Luis Arce explains the serious- under the direction of ness of the energy, food, climate and financial crises and of macro- the public sector - a economic policies that cast doubt on the prevalence of the capitalist system, and place the industrialized countries of the northern hemi- country industrialized sphere in a precarious position, as evidenced in the financial collapse by the coordinated of the United States, Ireland or Greece, among others. action of four actors: the Bolivia, said Luis Arce, has watered in such turbulences with some private, community and comfort, because five years ago the administration of President Mo- cooperative sectors, and rales adopted measures to stimulate the domestic market and not rely exclusively on the external one; also State assume a leading role in the public sector itself planning for the economy, manage public companies, invest in the productive sector, finance projects, regulate the market players and so on. Besides, the State begun to apply income redistribution policies, to reach vulnerable groups who were neglected by the previous administrations.

All the new powers of the State are aimed at turning Bolivia into a industrialized country through coordinated action by four actors: public, private, community and cooperative sectors, whose integration configures a plural model; it means a Plural Economy.

In the following issues of the magazine, the reader will be provided other theoretical and practical elements that will facilitate the under- standing of the economic thought of the Bolivian women and men who contributed to the formation of the New Economic Social Com- munitarian and Productive Model.

Unit of Social communication 2 Ministry of Economy and Public Finance La Paz, September 2011 La Paz, September 2011 Pluraleconomy 3 The New Economic Social Communitaty Productive Model

By Mr. Lu i s Alb e r t o Ar c e Ca t a c o r a

What is an economic model

An economic model implies a worker’s surplus-value. Workers way of organizing the produc- are exploited by making them to tion and distribution, therefore, work more hours than are neces- a way of organizing the social sary to produce the goods and relations of production. In the depriving them of benefits. That history of mankind, there have surplus was also produced by the been several economic models exploitation of natural resources under different modes of pro- in the hands of transnational cor- It is not the claim of duction that have established porations and the private sector, the New Economic different social relations; also, so that the surplus value accrues these relations determine the to them without making the nec- Social Communitarian way in which societies are or- essary transfers to the State for it and Productive Model ganized into legal, religious and to address education and health to enter directly to the cultural aspects. for the people. change of the capitalist It is not the claim of the New Therefore, the distribution of the mode of production, Economic Social Communitar- surplus was not equitable nor ian and Productive Model en- the income so that social prob- but lay the groundwork ter directly to the change of the lems arose which ultimately led for the transition to the capitalist mode of production, to economic problems. When new mode of Socialist but lay the groundwork for the economic problems are resolved, transition to the new mode of social problems are gradually production Socialist production. eliminated.

An economic model defines What is happening in Europe how economic surplus is gener- at this time is a social mobiliza- ated and distributed. A society is tion due to economic problems. sustainable over time when the There had supposedly equi- generation of surpluses is aimed table distribution of income; at the satisfaction of current and however problems now arise future needs through the distri- because people are losing their bution of this surplus in society, hard-won economic rights. For when surpluses do not satisfy example, the retirement age is the collective need, then it is nec- increasing, salaries to public essary to redistribute them ac- employees are decreasing, the cording to social needs. State is lacking investment capacity; i.e. the income distribu- In the neoliberal model, the sur- tion is becoming worse provok- plus was generated from the ing social problems.

The New Model is a transition model to Socialism 4 Ministry of Economy and Public Finance La Paz, September 2011

A model of transition outs in the large cities like New York and Paris; This is a sample As already stated, at the time of the high consumption of ener- of designing of the new model, gy, in contrast to the insufficient they wondered what comes af- capacity of power generation ter the neo-liberal model, is it is in these countries. On the other socialism? Which is the ultimate hand, there is a great potential goal? or, is there an intermediate in South American countries to stage? generate energy, although they do not have the same level of This is a model of transition to demand. socialism, which will gradually solve many social problems and This situation is evident in the strengthen the economic basis nighttime pictures taken via for an adequate distribution of satellite, where we see that the economic surplus. northern hemisphere is extreme- ly lit, while the southern hemi- It was never thought to build so- sphere not. Only major cities, cialism immediately. Even Carl like Rio de Janeiro, Buenos Aires, This is a transition Marx -when speaking about the Caracas, are lit, while the rest of model towards Paris Commune- and Lenin ex- the South America and Africa are plain why is not possible the virtually in darkness. Socialism in which mechanical transition from capi- many social problems talism to socialism. There is an This growing demand for energy will be solved intermediate period. In the case in developed countries together of Bolivia, the New Economic So- with the depletion of deposits gradually while the cial Communitarian and Produc- and reserves of gas and oil in the economic basis will tive Model would allow laying world, forced several industrial- out the conditions for a transi- ized countries to seek alternative be consolidated for an tional society towards socialism. sources of power generation, in- adequate distribution cluding nuclear power. Howev- of economic surpluses The diagnosis er, the latter is being revised following the latest developments To understand the new model it in Japan. is paramount to depart from a diagnosis of the capitalist system, The food crisis was already which since 2005 already experi- warned in 2005, when the Gov- enced an acute wear expressed in ernment Plan of the MAS pro- four crisis: energy, food, climate posed measures to reach food se- and financial. However, recently curity. Food production became it was added the crisis of macro- insufficient in the world by the economic policies. growing demand for food, espe- cially in Asia, and the decline of The energy crisis is seen in the arable agricultural land on the increase and the price volatility planet. In addition, the change in of oil and natural gas, thus affect- consumption caused by the ener- ing the electrical energy costs. gy crisis because some countries used much of its land for the pro- This crisis erupted with hard- duction of bio fuels is deriving in ness of the world’s largest coun- using food for machines, instead tries, proof of this are the black- of food for people.

In the New Model, the State is the fundamental actor of the economy La Paz, September 2011 Pluraleconomy 5

The third crisis of capitalism is The fourth crisis of the capital- the climate crisis. International ist system is the financial crisis; agencies have called it: “cli- the so-called financial bubble on mate change”, but it is actually Wall Street that led to a series of a climate crisis generated by the bank failures, because of the use warming of the Earth as a result of very imaginative derivatives That bubble blew up in of a disorderly production and which got out of control. In 2008 the United States after consumption and the plundering that financial bubble -which was of natural resources by the devel- expanding for 15 years in Unit- 15 years of its expansion. oped countries and transnational ed States- exploded. Misguided Unwise economic corporations, to the detriment of economic policies and poor su- the ecology and the environment pervision of the financial system policies and a mistaken in the world. in this country contributed to supervision of the nancial such condition. Now the crisis Hence arisen climatic phenom- shows no sign of ending because system of that country ena such as El Niño, La Niña, it has spread its impact to Eu- made this situation cyclones, floods, and hurricanes rope generating concerns world- even more serious up have worsened at the global lev- wide as well. There is a crisis of el in recent years. For example, trust within the society, about to reaching a point of a Bolivia is facing high and low what the capitalist system had nancial crisis which does temperatures that had never built and the role of the market been before. High heat waves in the economy . not seem to nish become fires and droughts like those recorded in the Chaco re- Developed countries are facing gion, among others. fiscal and debt crises and there

n The five crises of capitalism Crisis in the financial system Currently the world is not only going through the financial crisis Climate crisis and its consequences in the real sector; but also it is enduring:

Energy crisis Crisis of macroeconomic policies

Food crisis

In the New Model, the emphasis is in Production 6 Ministry of Economy and Public Finance La Paz, September 2011

is social unrest in Europe unlike Both theories have no answers small countries. Restricted fis- to the crises of capitalism. To- cal policies are heading –for to day, Keynesianism has been increase of the retirement age, tested; the U.S. President, Barack which is a reflection of the finan- Obama, dressed the shirt of John cial crisis, while the situation is Maynard Keynes and began to different in Latin America. implement its economic prescrip- tions, but, unfortunately for the The world currently lives in a se- Americans the crisis continues, nile, old, capitalist model that is not unemployment is still high and giving answers to the crisis which recession is acute in that country. derives into the fifth crisis: the crisis of macroeconomic policies, as Monetarist policies were also put evidenced by the overwhelmed into practice and failed because lack of responses of capitalist-way these policies in the past were economic policies to the problems the core element of neo-liberal- of capitalism itself. ism in several Latin American countries which have gradually There are two main flows of been swept away. economic thought within the orthodox capitalist conception: The crises of capitalism are op- monetarists and Keynesians. portunities for Bolivians, since

n Origin of the design of the new economic model

The New Economic Social Communitarian and Pro- At a meeting of the Goblin Group with Álvaro García ductive Model was brewed in a scenario of rise of the Linera’s group, they realized that they held coinci- neo-liberal model. Back in the year 1999, when Bolivia ding thoughts and they “spoke” the same language; lived far cusp of neo-liberalism with the so called “Ca- while using different methods and tools. Comuna pitalization” (Privatization), a group of “old socialist”, for- was working on research about the socio-political mer activists of the Partido Socialista Uno (PS-1), began process in much depth while Goblin was working on to think of post neoliberalism. This group was named the transition to socialism through a construction of Grupo Duende (Goblin) and consisted of lecturers, in- a new economic model. cluding Luis Arce, professor at the Universidad Mayor de San Andres UMSA and at the Development Scien- Additionally, and once the electoral campaign for the ces Post-Graduate Program of UMSA (CIDES-UMSA). elections of 2005 started, Luis Arce worked on the Economic Plan of Government for the Movimiento The new model designers considered that Francis al Socialismo (MAS) along with Carlos Villegas, then Fukuyama’s book (The End of the History) was wrong, director of CIDES-UMSA, and other researchers. because capitalism was not the only and last instance of history: there was something else ahead. The Research of Arce and Villegas were the embr- yo of what later became the New Economic Social By this time, Álvaro García Linera, now Vice Presi- Communitarian and Productive Model which has dent of Bolivia was conducting his own research on been the base for the economic programme of Go- Bolivia’s social issues. He formed the “Grupo Comuna” vernment of the Movimiento al Socialismo(MAS), integrated, among others, by Raúl Prada, Luis Tapia from 2006 onwards, which is an economic model for and Oscar Vega. Bolivia made by Bolivians.

Unidad de Comunicación Social

In the New Model, the State is the promoter of the Economy La Paz, September 2011 Pluraleconomy 7

the country has the resources tus of food and energy producer to become a major producer of should be the country’s strategy energy and food, the two major to tackle these problems, with- weaknesses of the capitalist sys- out neglecting the other sectors tem. Therefore, reaching the sta- of the economy.

n How the model works

The New Economic Social Communitarian and Pro- mation, and change the primary export model, it is ductive Model is two-pillar pronged: the strategic required to put the foundation stone in manufactu- sector that generates surplus and income and em- ring, industry, tourism and agriculture by transferring ployment engendering sector. the surplus of mining, oil, and electric energy to those sectors. The model recognizes four strategic sectors that Bo- livia counts on to generate surplus for all Bolivians: The State is the re-distributer, which must be able to hydrocarbons, mining, energy and environmental re- transfer the resources of surplus sectors to the gene- sources. They are traditional sectors that supported rators of employment and income. In other words, the primary export model; however the country can- what it is intended is to free Bolivia from dependence not change its economic structure overnight; there on exports of raw materials, i.e., Bolivia has to leave must be a strategy that is embodied in the new mo- the primary export model for building an industriali- del to break that surplus-export negative circuit. zed and dynamic economy.

Income and employment generating sectors inclu- While for a time Bolivia will remain a primary expor- de manufacturing, tourism, housing, agricultural and ter, at this time the country should have clarity about others that have not yet been dynamic enough. the goal and the path to take. The new economic model is based on the success of the administration According to the new model, to make Bolivia a dy- of natural resources by the State, and it is designed namic economy, generate that productive transfor- for the Bolivian economy.

STRATEGIC Surpluses INCOME AND SECTORS: JOBS SURPLUS - GENERATOR GENERATORS SECTORS

•Maufacture •Hydrocarbons Industry and •Mining handicraft •Electricity •Tourism •Environment •Agricultural resources development REDISTRIBUTER STATE •Housing •Trading, transport services, other services REVENUE REDISTRIBUTION: SOCIAL PROGRAMS

•Juancito Pinto Bonus •Dignity Pension •Juana Azurduy Bonus POVERTY REDUCTION STEPS

The New Economic Model boosts domestic demand as much as the external 8 Ministry of Economy and Public Finance La Paz, September 2011 The neo-liberal model vs. the new model

In the scenario of the structural State a very active role; The crisis of capitalism and under State has to make everything five crises appearing together, needed: planner, entrepre- which overlap, they intertwine neur, investor, banker, regu- and they complicate to capital- lator, promoter of develop- ism, the new Bolivian model is ment. But in addition, the constructed. State has the obligation of generating growth, develop- The New Economic Social Com- ment in all instances of the munitarian and Productive Mod- country. el depart from a diagnosis of the mistakes of the neoliberal model 3. The third element is that the Bolivia established a to oppose a new policy that is the State, with the nationaliza- pattern of exporting antithesis of the neo-liberal model tion of natural resources, of economic policy in response. takes control of strategic sec- primary development, tors as oil, mining, electricity i.e. a model based 1. The first element is the cri- and telecommunications, to on the exploitation tique to the free market and benefit Bolivians and not the to the hypothesis of the effi- transnational corporations. and export of raw cient market, and therefore materials for the benefit the new model places the It is the antithesis to the scheme State as the key player in the posed by the neo-liberal of a few. In the new economy and that corrects model, which privatized model economic, market failures. state-owned companies and social, community transferred surplus abroad The Neoliberalism holds that as foreign direct investment and productive the the market is the best and repatriated profits. Such emphasis is on the most efficient administrator scheme gave away con- of resources in the economy, trol on natural resources to production and the however, this premise failed transnational corporations. redistribution of income since the Bolivian economy That was the essence of the did not get an effective boost neo-liberal model. towards economic development. State-owned enter- 4. The fourth element is the prises were privatized, the change of the existing export State’s participation was re- primary pattern in the coun- duced in the economy, and try by a process of industri- there were no adequate allo- alization and productive de- cation of resources in Bolivia, velopment. which generated a larger gap between rich and poor. In this From the colonial times and sense, the market shows seri- through the neoliberal peri- ous weaknesses. od, Bolivia established a pattern of commodity-export 2. The second element of the development, i.e. a model new model is to attach to the based on the exploitation

The State is the Redistributer of resources to excluded and vulnerable sectors La Paz, September 2011 Pluraleconomy 9

and export of only raw ma- redistributing it aiming es- terials. In the New Economic pecially to the marginalized Social Communitarian and of Bolivian society. Productive Model, the emphasis is on production and 6. The sixth element is the State generation of products with is the main promoter of the added value. economy, it is the most important player, symbolically The need for implementing leads the economy as the an industrialization process attacking midfielder (# 10) for Bolivian raw material does in a soccer team. forces the country to change the mentality of its people to- The neoliberal model as- wards a mindset focused on sumed an economy focused such process. In recent years on private initiative, while it was evidenced that there is the State worked as a mere a large of an idle production appendage. A former Presi- capacity. dent of Bolivia handled the It is necessary to “export or die” motto and It is necessary to change the this assertion was not by change the productive productive matrix of that chance because within the matrix of that old old primary export model to private sector, the sector another one that prioritizes that would generate the de- primary- exporter industrialization and, conse- velopment of the country’s model for another quently, increases the value economy was the exporting of the products. Enhancing one. However, this sector that prioritizes the the material basis of produc- did not diversified; it was production and, tion is essential to get out of not generating added val- consequently, the poverty. ue nor creating additional wealth for the country, and increment of the value 5. The fifth differentiating ele- therefore the neoliberal col- of products ment between these models lapsed earlier than in other is that the New Economic countries, where there was Social Communitarian and a better export capacity and Productive Mode looks for a better exporting private achieving economic surplus sector. and redistribute it to the sectors previously excluded 7. The seventh difference is that from it.. Thus, the State as- the new economic model sumes the role of surplus boosts domestic demand at allocator. The neoliberal the same pace as external de- model concentrated income mand to achieve economic in few hands, and therefore growth. The neoliberal model excluded other segments of was external demand-driven the population. mainly as it considered that exports would be the engine With the new model, it is in- of the economy. tended to get the inclusion of the excluded of the excluded. In the new model the ex- How to do that? By not con- ternal sector is not the only centrating the income and driver of the economy.

In the New Model macroeconomic stability is a social asset 10 Ministry of Economy and Public Finance La Paz, September 2011

While exports are important With the implementation of when the economy takes ad- the new model, it has shown vantage of trade, a country that Bolivia has the capacity should not neglect domes- to generate domestic savings tic demand. Under the new not only to have a strong and model, the State is working solid fiscal sector, but also to to strengthen domestic de- increase public investment mand, which allowed Bo- with domestic resources. livia to tackle the financial crisis and achieve greater 9. The ninth difference is social growth rate in the region (in inclusion. The new model 2009) when the rest was suf- enables the generation of fering from the crisis. opportunities for more people through a more dynam- External demand fell glob- ic economic development ally in 2009 because of the that drives to redistribu- financial crisis and countries tion with employment gen- like Colombia and Chile eration. In the neo-liberal The new economic could not keep up their neo- model stagnation, poverty, model overcame liberal models based on their inequality prevailed; lack exporting sectors. If Bolivia of economic opportunities the dependence of would have bet solely and was a constant. the external savings exclusively to the growth re- and developed lying in external demand, it 10. The tenth difference is that would have been experienc- the new economic model the capability to ing strong recession in 2009. considers macroeconomic generate domestic But it was not so because of stability as the starting point a stronger domestic demand. - not the ultimate goal – to saving for investment, The Bolivian economy since generate economic develop- reducing the external 2006 is like a plane that flies ment. indebtedness and to with two engines, domestic demand and external. Macroeconomic stability in achieve fiscal surplus the neoliberal model was an 8. The eighth difference is that end in itself. It was the ulti- under the new economic mate goal that all economic model Bolivia rid off the de- policies had to pursue. More- pendence on external savings over, the fight against infla- and developed the capacity tion was practically the only to generate domestic savings goal that neoliberal economic for investment, reducing the policy pursued, because the external debt and achieving private sector was entrusted fiscal surplus. to deal with the rest.

In the neo-liberal model, In the new model, macroeco- Bolivia was dependent on nomic stability is a social as- external savings for public set and is the basis on which investment and also to en- stand the economic develop- sure the sustainability of the ment and redistribution of public sector, i.e. fiscal defi- income and industrialization cits were financed by exter- of natural resources will be nal debt. built up.

In the New Model, the macroeconomic stability is the starting point, not the goal La Paz, September 2011 Pluraleconomy 11

The neo-liberal model The new model Free market. The market is the The State intervenes to correct mechanism through which resources the market failures (absence are allocated and correcting of redistribution of wealth and imbalances. Efficient market transnational monopoly of strategic hypothesis companies) Active participation of the State in the economy. The State should intervene State policeman. State observer. in the economy through its seven The market is the self-regulatory roles: Planner, entrepreneur, investor, mechanism of the economic process regulator, benefactor, promoter, and banker State that privatizes, and transfers surplus abroad and does not preserve Nationalization and control of natural/ natural resources that belong to the strategic resources to benefit Bolivians Bolivian people Development pattern: commodity Development pattern: Industrialization exporting for economic development Concentration of income and Income redistribution. Plural economy proliferation of exclusion and social inclusion Economy focused on the private State sponsor of the plural economy sector development Entire reliance on external demand- Growth based on external demand and driven growth domestic demand Dependence on external savings for Generation of domestic resources investment, higher debt and fiscal for investment, lower debt and fiscal deficit surplus Stagnation, poverty, inequality and Ongoing development, redistribution lack of opportunities and employment generation Preserving macroeconomic stability as Macroeconomic stability as an end in a social asset as the basis for economic itself development

The New Model pursues to built up an Industrialized Bolivia 12 Ministry of Economy and Public Finance La Paz, September 2011

The reason for the name to modify and incorporate fundamental values such as solidarity. The New Economic Social Commu- State policies have to have a soli- nitarian and Productive Model is: darity component.

Social, because it places empha- Productive, because it is not con- sis on solving social problems ceivable to beg to defeat poverty rather than individual problems. in Bolivia. The only decent, re- sponsible, and sustainable way Communitarian, because its main out of poverty is producing goods objective is the common good and and services in Bolivia. That is the welfare of all, but also it contains reason the Bank of Productive traditions and values of ancestors, Development (BDP) was created, which were displaced in the neo- meaning to channel credits which liberal model by the exaltation of gradually shall transform the pro- individualism. It was necessary duction matrix of the country.

n Who are the players in this model?

Here comes the concept embodied in the Political only in the mining sector, but also in the rural sector Constitution of the State (CPE): the Plural economy, as well as in the financial sector (credit unions). which establishes four key players: the State, the private sector, cooperatives and communities. These are The most important characteristic of the plural econ- the Plural Economy players omy is the recognition of all players involved in the Bolivian economy and the acknowledge of all forms of The State is the fundamental promoter, organizer, in- production, such as the ones that still persists in rural come re-distributor, in sum the most important play- areas among the indigenous people and that were not er of the team. Then it is the classic private enterprise taken into account until now. that generates employment and has some independence from the State to produce and distribute. As the CPE mandates, the State must encourage the communitarian economy with technological, financial As part of the plural economy, there is also the co- support and should also integrate the three aforemen- operative social economy: the associative unions, be- tioned players. cause cooperatives in Bolivia are deeply rooted not

STAT E

- Promoter - Organizer - Redistributer

SOCIAL COOPERATIVE Role of the State PRIVAT E ECONOMIC Promote the integration of di GROWTH WITH INCOME RE DISTRIBUTION erent economic forms of produc- - Employment generator - Generator of production and employment - Generator of production and services - Principles of solidary work and tion, aiming to achieve economic - Strengthening of cooperation economic independence and social development

COMMUNITARY

- Generator of production and employment - Principles of solidary work and and cooperation

PLURAL ECONOMY Association of the individual interes and the collective living well