Thursday, November 11, 2010

Cold Hard Facts

What were economic conditions like in Honduras before and during the Zelaya administration? what are they like now?

Don't look to US media for the answers to these questions. The only attention US media paid to Honduras during the Zelaya administration was framed in terms of US political interests: would Honduras remain the faithful dependent ally it had been, or would engagement with ALBA allow the country to establish an independent course guided by its own social interests? US media were pre-destined to cover the coup and its aftermath as a story of global power struggle between US interests and those of ALBA.

But as we have emphasized since the beginning, drawing on Honduran scholarship and reporting in Honduran news media and governmental and international sources of information, the Zelaya administration, and the coup that removed it, had a lot more to do with combating the conditions of economic inequality in the country, and experiencing push-back from those whose interests were not served.

So it is especially gratifying to see a mainstream English-language newspaper cover the economic context. Of course, it has to be a British paper. Jonathan Glennie, writing in the Guardian's "Poverty Matters Blog", has a terrific article that lays out the economic facts.

Let's summarize:

before the start of Zelaya's term:

2001: 60% of the population lived below the poverty line
2005: this number reached 66% of the population living below the poverty line

2005: urban unemployment stood at 6.5%

2005 data show that 47% of income was earned by the 10% of the population; 2.1% of the income was earned by the bottom 10%.

during the Zelaya administration:

2006 data show that 42.4% of income was earned by the 10% of the population; 2.5% of the income was earned by the bottom 10%.

In 2007, urban unemployment had declined to 4%

By 2007, the proportion of those living below the poverty line dropped to 60.2%

The minimum wage was increased over 60%.

School lunches were extended to 200,000 more children (a 25% increase).

Over the first three years of the Zelaya administration, economic growth averaged 5.6%

since the coup that illegally removed Honduras' president:

The economy contracted -3% in the year following the coup.

This kind of analysis-- no matter how it is substantiated, including with citation of Millennium Challenge Corporation data-- normally brings out the worst in commentators on this blog, who use weird anecdotal arguments to counter national and international, objective, data, and try to muddy the overall picture by selecting one or another of their favorite scandals and claiming it counters all the data confirming that Zelaya was good for the Honduran economy and was effecting modest decreases in economic inequality.

(We particularly like the commentators who cite the cost to maintain ex-President Zelaya's horse. Definitely on a par with the current right wing media claims that President Obama's trip to India is costing $2 billion.)

But the numbers don't lie.

So bravo to the Guardian for providing one of the first serious economic analyses in mainstream English-language media of the economics of the Zelaya administration.


RAJ said...

Thanks to boz for his comment on this post that pushed me to do something I did not have time to do when posting originally. Here's my reply to his comment; go read his post for his original comment and his reply:

Agree entirely that the sanctions hurt the poor. But even more, as we discussed throughout the term of the de facto regime and since, the actual policies of the successor governments deliberately hurt the poor: start with the de facto regime spending down reserves simply to fuel resistance against the entire hemisphere; add the Lobo government refusing to set a minimum wage (because the politically powerful business community won't accept a livable wage); look at the inability to deal with basic grains price fluctuations; and add in the contracts for mining and water control projects protested by the affected communities; and perhaps more than the international community, the successor governments in Honduras were and are bad for the poor.

On the question of the significance of economic contraction, and how much is due to the international economic decline, one could look at Nicaragua, as one close comparison: the CIA Factbook says the economy there contracted from a GDP of 3.2% (lower than the Honduran 5.6% reported in the Guardian or the 4% that the more conservative CIA Factbook provides for Honduras for 2008) to -2.9%. The two more recent numbers are similar for Honduras and Nicaragua; but the point is that under Zelaya the economy was much better, so the reversal is much more dramatic for Honduras.

Let's add El Salvador for comparison: again, the CIA Factbook says their GDP went from positive to negative, but here the swing is from 2.5% growth to -2.3% growth.

Guatemala is even better: 2009 GDP only contracted -0.5%, down from 4%.

See a pattern? The Honduran contraction is deeper and the level of growth before the coup and the global depression combined was higher. And it is worth noting that the CIA Factbook has the Honduran contraction at 3.1%, higher than the Guardian.

Charles said...

Is there a link to Boz' comment?

RAJ said...

Sorry, I goofed up and the link didn't copy: try here.

Charles said...

Thanks. I'll provide the link and correct my attribution.

Carlos Tower said...

Wages and poverty: As the CEPR Report (basis for most stats used in this U.K. article) clearly points out, the low Honduran maquila wage still isn’t low enough to maintain fullest employment levels as they are undercut by Asain competitors. Additionally, the maquilas are immune from standard minimum wage adjustments that apply to non-maquila workers (such as Zelaya’s adjustment – which was upheld by the alleged pro-business, pro-coup Supreme Court, in a very well-stated opinion). It is not possible to separate in any meaningful way wages, employment and poverty – though this is what opften happens in statistical measures. You cannot reduce poverty by increasing wages, unless of course there is little or no unemployment due to that adjustment (unemployment is what happened in Honduras – though not due solely to the wage hike). Also, you cannot decrease poverty by a wage hike unless of course employers actually pay the hiked wage (most employers do not pay the minimum wage, as CEPR notes; those that do are most often large outfits, usually owned by the Golpistas themselves). What the article avoids are many things that matter, namely what provides jobs and which jobs are tied to which wages, and if poor people ever receive the alleged wage hike. Direct Foreign Investment had plummeted pre-Coup (a drop of nearly 45% in just the first half of the year 2009, as compared to 2008 – per CEPR). One primary cause is the creation of a climate that does not encourage investment – such as Zelaya & Rodas often bizarre statements on the country’s future. Another factor that crushes investment, which reduces jobs and furthers poverty, is crime and violence. While my country is insanely violent right now, this is merely a progression of what happened under Zelaya as he did not deal with criminals or drugs (the Honduran murder rate per 100,000, by year: 2003 (34); 2004 (32); 2005 (35); 2006 (46); 2007 (50), 2008 (58); 2009 (67). When a place is violent, businesses reduce hours (compare San Pedro operations 1987, 1997, and 2007). What is the solution? If you raise the maquila wage then added countless jobs will be lost to Asia. If you hike the current wage, Golpista companies will eventually reduce the employment rolls. If you try to force everyone to pay the minimm wage, there will be mindboggling unemployment. If the wage was what really matters, then analogies to Nicaragua should stop as their wages are even lower. Many of the so-called accomplishments exist only on paper. The “free school” cherade is something many Hondurans know quite well. While journalists outside Honduras often tout this accomplishment (and the school lunch one), many Hondurans know it is usually a lie (I have family in San Marcos, Comali, outside Choluteca and Santa Rosa and Tocoa – and none of them had their school fees removed at any time during the Zelaya administration – and it is a story well known to countless Hondurans who cannot afford private schools).

RAJ said...

The argument that raising minimum wages does not reduce poverty but only increases unemployment is a classic conservative claim; for example, repeated by the Heritage Foundation in many US contexts.

But this claim is sharply contested by other economists, not surprisingly, those with a less conservative philosophy. For example, see the testimony to the US Congress in 1999 by Jared Bernstein (currently an economic advisor to Vice President Joseph Biden) who says:

the evidence unequivocally supports the view that increases in the minimum wage, by increasing the earnings of low-income workers without diminishing their employment opportunities, have historically helped to lower poverty rates.

Bernstein directly takes on the conservative claim:

opponents of increases in the minimum continue to raise the same objection: the increase will lead to job loss. This claim is based on the simple textbook notion that is the price of a good is competitively set by the free market, any diversion from that price will lead to lead to an inefficient outcome. In this case, the prediction from the simple model is that the increase will price low-wage workers out of a job....

There are a priori reasons to be skeptical of this simplistic view. Low-wage workers are not "goods," and the low-wage labor market is far from the competitive laboratory that exists in Econ 101 textbooks....

The theory that "small" increases in the minimum wage lead to job losses has been repeatedly tested and repeatedly found lacking ... The state of economists' understanding of the issue was recently summarized by Nobel laureate Robert Solow, who noted that "the main thing about this research is that the evidence of job loss is weak. And the fact that the evidence is weak suggests that the impact on jobs is small."

That is: the arguments against raising the minimum wage are abstract and based on theory; real world studies of what happens when minimum wages are increased show that it does help combat poverty.

Now, you may say, that is true in the US but Honduras is different. Yes, Honduras is different-- wide noncompliance with minimum wage laws, for example, and corruption on local levels that means policies are not enforced are effects that make it difficult for government to affect the overall economy. But that does not mean governments should give up on trying to change things.

RAJ said...

As for the kind of incoherent argument here that the Zelaya administration was bad for business-- as both the growth figures in the CIA Factbook and similar measures in the Millenium Challenge Corporation indicated, the Zelaya administration fostered growth of the economy, and more growth than seen by neighboring countries. Economist Miguel Cáceres produced what still seems to us to be the best overview of economic effects of Zelaya's policies, and he argues that golpista business resistance has a great deal to do with the way export created a larger possibility for profit, with even a modest reduction in profit seen as unacceptable.

Comparisons to neighboring nations in terms of percentage growth make sense even if the economic base wage is different; the minimum wage in any country needs to be compared to cost of living indices in any event.

Finally, while I do not doubt the reports of your family's experience with school fees and school lunches, your inference from these anecdotal accounts that there was no benefit received anywhere is simply-- anecdotal. Local corruption, inefficiences of government, and even insufficiency of funding for programs can all limit the reach of programs. You want to claim that nothing happened. But other sources that look at the country overall find evidence that something did happen. I will continue to report those more independent statistics even though one of the two most common attacks on this blog is when we cite a statistic with which a reader personally disagrees.

Social science is in part about helping to tell the difference between personal experience and the broader experience that can be objectively established.