Friday, August 6, 2010

Political economy of Honduras: 1990s-2009 (Part 3 of 4)

Economist Miguel Cáceres Rivera and historian Sucelinda Zelaya set the stage for understanding the political economic crisis that led to the coup d'Etat of 2009 in their discussions of economic transformations in the early twentieth century and under the military dictatorships of the 1960s-1970s.

We enter the recent period with a transformed landscape: migration of rural farmers to cities where they became the labor force and reserve labor pool for industry, in parallel with surprisingly successful rural movements to take land from larger land owners and put it into production, creating demand for products of industry from a laboring farming population, all under the auspices of a military linked comfortably to the new industrial class, bypassing the traditional elites of the two party system.

Third crisis

Cáceres and Zelaya identify a third "crisis of reproduction" starting in the 1990s, in both rural and urban sectors throughout the country. They identify three root causes:

First, employment growth was insufficient;

the continuing and growing extraction of income from the rest of the social classes on the part of the business elite by means of mechanisms such as devaluation, the monopolistic management of fuel prices, and the oligopsonistic management of the prices of electricity, mobile phone service, and high interest rates;

and third,
a constant and progressive exaction of income from the population by the State by means of taxes in general and the sales tax and tax on fuels in particular.

Or to simplify it: even in the face of limited employment, the State budget was based on regressive taxes that differentially affected poorer Hondurans , while state economic policies and the holding of business in the hands of a small group of individuals allowed the maintenance of price policies that benefited the wealthy business class at the direct expense of the working class.

Cáceres and Zelaya characterize these policies as "decimating" the potential of families to purchase goods, leading to a contraction in demand and thus in new job creation in industry, which in the second crisis had assumed a much greater role in the economy. They note that one-third of the employment-seeking young emigrated in search of work during this period. The remittances sent back by these individuals, they write, postponed the "eruption of the crisis" while providing yet another source of income for the banks controlled by the small wealth/political elite, which charged high service fees for transfers.

Meanwhile, the Honduran state inherited external debt from the reform era which led to increases in taxes and currency devaluation. "It was assumed that devaluation would stimulate a greater export production that would increase income in dollars" needed to pay the international debt. This led directly to government encouragement of increased export agriculture and the development of the maquilas, export sweatshops operated by multinational corporations. In the analysis of Cáceres and Zelaya, the government extracted from the general population the funds to pay debt that was accumulated to benefit the industrial business class in the earlier crisis, a "transfer of income equivalent to the amount of the debt and interest" from the working classes to the business class.

Devaluation of the lempira "is another state action of the same nature that increased the income of the exporters and the banks". They note that this came "at the cost of the equivalent reduction in purchase capacity" due to inflation that affected the working class, campesinos and self-employed service-sector workers, micro- and small-businesses, and professionals with secondary and university education. This "transfer of income" deteriorated the living conditions of families and made precarious the survival of business, and their ability to generate jobs. Businesses faced very high interest rates on loans, imposed by banks due to the high rate of inflation spurred by devaluation of which, the authors note, the banks themselves were actually beneficiaries.

Further contributing to the crisis was disinvestment in HONDUTEL, the phone company, and ENEE, the electrical company, opening up opportunities for the private enterprise elite to exploit the demand for these services.

The economic crisis "led to a crisis of faith in the political parties and the State, that have been very useful for the growth of the business elite and the functioning of a new axis of accumulation". The growth of political parties stalled, increasing more slowly than the voting-age population. About half of the population of Honduras, they say, has no party affiliation. As we covered extensively in the run-up to last November's election, abstentionism had reached about half the population of eligible votes.

The growth of maquilas, banks, cell phone companies, and electrical companies, and of non-traditional agricultural exports,
defines and places in relief a new axis of accumulation that implies a concatenation of agricultural, industrial and tertiary investments that the business elite manages and on which is supported its present economic and political power.

This elite, the authors argue, arose from the solutions of the first two crises they discussed. Further, they write,
It is the elite that in the process of strengthening its economic hegemony created the present crisis.

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