Jorge Bula

(Assistant Lecturer at the Universidad Nacional de Colombia)

This paper seeks to analyse the economic, political and social conditions under which the process of capital accumulation has taken place in Latin America during the last 30 years and its effects on employment creation and more general, on the labour market and labour stability.
In dealing with these different aspects, exogenous and endogenous factors have to be taken into account in order to a better understanding of such a process. The way Latin-American countries have been articulated with the world economy and the way the changes of the latter have been introduced in the former, are relevant insights that this paper will try to put together.
Briefly, the approach that it will follow is the analysis of the social mode of regulation and the accumulation regime that have characterised the Latin-American development during these three decades.


After the big crash of the 30s, Latin-American countries have undertaken a process of industrialisation based in an active substitution of former imported goods to be produced domestically thanks to the existence of an indigenous industrial base.Such an experience became during the 50s and 60s a conscious policy which was followed by all the Latin-American governments without exception, under the leadership of the ECLA (Economic Commission for Latin-America). The accumulation regime characterised by the ISI (import substitution industrialisation) strategy, was the way to accelerate the articulation of these economies to the world capitalist system. In other words, the role played by the State, looked for the consolidation of wage relations into the economy.

The ISI strategy counted with the support in some Latin-American countries, of a significant direct foreign investment inflows, that made possible to these capitals to warranty some captive markets already consolidated in the previous period of this strategy.The presence of the foreign capital in the industrialisation process, had had as a consequence the introduction of labour saving technologies to produce in a first moment of substitution, consumption goods. Populist regimes were more or less generalised in Latin America, in order to prevent social unrest vis-a-vis the modernisation process and to some extent, to give a national political autonomy to this process.

A deep and fast rural migration to the urban areas took place during this period, the urban population grew up from 20% in the 30s to more than 60% in the 60s and reached almost 80% in the 70s. This migration could not be absorbed by the industrial sector, due to the type of technology incorporated in this sector. In addition to this, the process of capital accumulation was based on very low wages, since the labour force was considered as a cost rather than a potential demand for the economy.
These circumstances led to a regime of capital accumulation characterised by the creation of a Third Demand of consumption goods accessible only for a medium class sector of white collars workers and highs skilled labour force but excluded a wide sector of the population.


During the 70s Latin America knew a wave of dictatorships in many countries. They were not anymore the populist regimes led by a caudillo, but military regimes where the State was identified with the military institution.The process of internationalisation of these economies and the new exigencies of the world economy, in particular, the conditions for the accumulation and valorisation of the international capital, required a strong centralisation in the take-decision process. International flows were in fact very important in order to build the new strategy of accumulation: the Export Oriented Industrialisation (EOI).

In order to make possible this change in the economic policy it was essential to transform the instruments to control and regulate the economy. Two problems have to be faced: inflation and the insertion of the economies in international financial circuits.The actors who led the implementation of the new model in the economic policy looked for built new management rational process in order to increase the enterprises productivity and profitability on the basis of a more technical staff. Such orientation was made regardless of the social equilibrium and of the research and development activities.


The economic crisis of the mid-seventies, led to some transformations in the type of accumulation regime, characterized by an intensive way based on mass consumption, that was called the fordist regime. The social and political mode of regulation that supported this kind of regime was the "welfare state" or the Keynessian consensus. Rigidities in long term capital investments and in the labor market made it difficult to continue to follow this pattern of accumulation of capital. In addition, the crisis made obligations of the welfare state a real burden in terms of fiscal budget. Social security, unemployment allocations, pensions, etc. led to deep fiscal imbalances, and the only flexible instrument to deal with was the monetary policy that had had some effects in inflation levels and which terminated in stagflation (stagnation + inflation).

This fact changed the perception of the international context notably in the industrial countries, from a well functioning system tending towards full employment, to one with higher consciousness of an interrelated world where their economies can have significant impact over other economies. In other words greater emphasis is made over the 'outcome of negotiations' between countries, including some less developed countries (LDCs) as the newly-industrialized countries (NICs) and the oil exporters (OPEC members), began to play a more important role in the world economy. Some of implications for developing countries that followed from the crisis, were:

The answer to face this crisis was found in the Japanese experience. In fact, the way japanese had assimilated western manufacturing practices to their particular conditions in the post-war, led them to make some innovations according to such characteristics. "Just-in-time production" and "quality circles" for instance, were some of the models to be followed. Microelectronics and the advanced technology in communications made it possible to introduce flexibilisation both in the work process and in labour relations. Flexibilisation was then the paradigmatic response to reorganizing the accumulation regime, now called a post-fordist one. If this new kind of regime will have hard consequences in the level of employment in developed countries, giving away to the full-employment perspective of the 1960s, the consequences in developing countries adopting similar technologies will become more critical, as we will see.

Flexibilisation will constitute a mechanism to restore economic accumulation, that in addition to other parameters would be the new paradigm of development and competitiveness in the new international context. Such a paradigm would be carried out by the multilateral agencies, notably the IMF and the World Bank. Since the debt crisis in the early 1980s derived from what followed after the oil crisis in the 1970s, most developing countries have had to adopt stand by agreements with the IMF, and structural adjustments programmes with the World Bank. Those programmes usually include fiscal austerity, that means cuts in social expenditures and recently, privatisation; liberalization of markets, capital movements and exchange control; and wage restraint, revision of subsidy, transfer programmes and flexibilisation of labour regimes (Taylor, 1991, p. 9), in one world: deregulation.

In fact, the leit-motive in the new international context is competitiveness and this is not based anymore on the former comparative advantages (low wages for instance), but on new capabilities, where one of the most important is "knowledge" as a particular resource for the new lines of production. That is why industrial restructuring has been taking place also in many developing countries in order to re-adapt their productive base for the new international conditions. That does not go without important effects on employment, and consequently in other societal aspects in Third World countries.


The process of capitalist development in Third World countries is, certainly, a lengthy road to follow. Nevertheless, the characteristics of the path of development has been changing a little under the new circumstances. Traditionally, some aproaches about developing countries have differentiated between a traditional sector (the agricultural sector) and a modern sector (the industrial one). The analysts pointed out that as long as capitalist development would take place, the traditional sector would give way to the modern one, and a structural change would take place. The dichotomy between the two sectors would tend to disappear. True, handicraft production was also considered as part of the traditional sector, but it was not as significant in its contribution to the national product as was agriculture. However, during the seventies and eighties, the so called informal sector spilled over in almost all developing countries as a characteristic of the excluding process of development that was referred to above.

Informal activities, or activities outside the regular "labour market" can have different expressions and levels of skills. According to the individual circumstances of a country, the kind of activities will vary depending on the level of economic development and its articulation to the international economy. One can differentiate at least two types of informal activities depending on the dynamic of capital accumulation: vegetative, regressive low level at the subsistence level, and evolutive, intermediate or transitional up level, more dynamic. One or the other type of informality will be determined by the kind of articulation to the so called formal sector.
How an informal activity is articulated to the formal sector seems to depend on the conditions and time when the informal activity begins to develop. It seems to me, that two different reasons can explain the spread of informal activities. On the one hand, the fact that wage labour has not been generalised in developing countries, and that wages even in the formal sector bears insufficient to meet the needs of households, which obligates the breadwinner or one of the family members to look for other activities in order to complete a reasonable level of income. On the other hand, the incorporation of high standard technologies, imported from countries that need to save labour, since labour is their scarce factor, has meant that the modern sector does not generate many employment opportunities. This situation is reinforced with the re-structuring process under the new "hard" and "soft" technologies and the flexibilisation processes as we will see later. This last aspect allows a certain number of micro-enterprises and domestic production to be more fully articulated by entering in the subcontracting process bearing by flexibilisation.

Let us now look at some experiences in order to have a better understanding of how informality works in Latin-American countries.

In the case of Peru, the development of the informal sector is a consequence both of the economic recession and the application of adjustment policies. With the crisis, employment in the industrial sector was reduced so was the waged labour in Peru. It remains very fragile vis-a-vis the international market. Between 1974-1984, when recession took place, the share of big enterprises felt in 5.7%, middle-size enterprises in 4.5% whilst small ones increases in 7.0%. Wage labour had its pick in 1974-1975, but since 1978 it felt very quickly.
In fact, in Lima waged labour force was in 1981 65% of the potential of labour force, when in 1987 it was only 57%. In addition a shift from productive activities to the service sector took place during a similar period (1977-1985). The crisis in the 1980s prevent the Peruvian economy to extent waged social relations as a way to organize production.
The consequences in income distribution of the effects of the crisis are quite significant. The share of earnings in the national income has been reduced dramatically between 1973 and 1987, from 48.9 to 34.2%, 1985 being the lowest level (32%). Concentration of income is going in Peru, hand by hand with concentration in property. Waged labour force, 36.6% of the population, received 18.6% of national income when owners, 5% of the population have 71.4%. Hence, one can observed that earnings have been reduced as a part of the national income. In the same way, the wage's capacity to buy, has been affected. Real wages have been diminished in their capacity to buy in 21.4% in 1985 compared to that of 1957. The minimal wage just cover 63% of real needs of households. It has been reduced also in real terms during the 1980s.
Peasants have been touched also by the crisis and their remuneration has been reduced between 1973-1984, from 49 to 34% as a part of the national income. Such a situation contributes to the increasing of the informal sector. Different kinds of jobs appeared or were developed as a result of this crisis. Temporary employment and part-time jobs as well as domiciliary work.
Subcontracting has been developed quite deeply in the mining sector for instance. In only three years, between 1985 and 1988, the number of people working under subcontracting conditions went from 28.9% of oil labor force to 40%. That means lower earnings, less social security for workers and more instability in the employment. The former big enterprises are divided in small units, each of them responsible for a part of the production process, notably creating service firms to support oil exploitation. That will have important consequences for the organization of workers in trade-unions as we will see later. This kind of subcontracting is that linked with the flexibilisation process that was referred before.
Other kind of effects appeared in the Peruvian economy, in particular, in the informal sector. The micro-industries, the women's organisations and the "peasants' rounds" (rondas campesinas). These are strategies to survive that have been developed by different social actors. They have been organized to secure members a minimal social condition for living.

Analyzing the case of Colombia, one can observed that in the recent years, the introduction of new technologies has had very significant effects on employment. The re-structuring of firms bore a shift in the kind of employment. Posts in the sector of production has been reduced in favor of the increasing of employment in the service sector. Furthermore, temporary jobs have also increased, and during the 1980s, the manufacturing modern sector stagnate, whilst the employment in the informal sector expanded at a rate of 5.5% between 1984-1988.
Another kind of shift has taken place concerning the type of worker. In fact unskilled workers are less required now with the new technologies, than a more skilled labour force. During the 1980s the introduction of new technologies has had as a result that employment stagnated finally. The manufactory industry absorbed 10.5% less of productive jobs after the re-structuring, and in leader sectors the impact is more important 14% less and in the "efficient" sector, 24.6%. If it is difficult to say if the reduction in productive jobs created job opportunities in other sectors, that seems to be a weak probability. Government intervention with a recessive character and a very wide opening of the economy that would have at the beginning (theoretically) strong effects on employment. In addition to that one has to consider that most Third World nations will be net importers of the new equipment and lack the strong software and capital goods sector that are the source of many new jobs in the developed countries" (Hoffman 1985, quoted by James, 1991, p. 21).

The Chilean experience has known what has been called Popular Economy Organisations (Organizaciones de Economia Popular (OEP) located in poor neighbourhoods. These are small co-operatives for consumption, production and distribution of goods. Other kind of informal activities have also appeared as family micro-enterprises, individual entrepreneurship, assistance strategies and even illegal activities.
From this experience, three type of social representation can be distinguished:

In 1991, 20% of the population worked in the informal sector. In the poor areas the informal sector represents 35% for perspectives on employment. Different kinds of activities have been developed in the informal sector: commerce, workshops, services, etc. During the 80ís, which are the lost decade, these OEP grew from 1.259 in 1986 to 2.454 in 1991, which means that the number of beneficiaries increased from 66.357 to 81.567. These organisations tend to be concentrated in the productive sector. In fact, activities from the informal sector can be articulated to the modern sector via subcontracting services or they even can compete with the modern sector, as it seems to be the case with the workshops. Goods and services offered by the informal sector serve to meet the basic needs for poor people. The lag from production to consumption is very short since proximity between sellers and buyers is the characteristic of this sector.


One of the features of the post-fordist era, since the crisis of the Bretton Woods system, is the relative autonomy of the financial sector of the economy. This process is even more relevant in developing countries and particularly in Latin America. Since de debt crises, the problem of inflation became stronger, thanks to the fact that some domestic savings had to be directed to pay the debt. Forced saving mechanisms were used in order to generate the necessary resources to assume the debt service. This was the objective of the first generation of adjustment program.

The second generation looked for reestablish the main macroeconomical equilibrium as control inflation, improve growth and to reduce fiscal deficit more than paying debt. As long as inflation is the product of a distributional conflict, and that wages are not aligned to the increases in productivity, and prices respond to mark-up mechanisms, indexation is on the basis of this process of inflation.

In fact, the way that it is now to be implemented to pay the debt is by trying to obtain external resources either by foreign exchange (increasing exports) or by putting treasury bonds in the external markets. The rate of interests to which those bonds are offered, is aligned on the expected rate of inflation accordingly to the devaluation rate. That makes that the rate of interest tends to be higher than the rate of profit leading to a de-industrialisation process in Latin-American countries. The foreign investment has been oriented towards investments in treasury bonds rather than in productive assets. Employment generation has in consequence been very poor. In addition to this, the dismantling of the already idle social security via privatisation, have made employment even more precarious.

Furthermore, the technological gap vis-a-vis industrial countries has increased with the introduction of new technologies, and the opening of the external sectors, only some posts of high skilled employment have been created , the competition of new products now free imported have led to the destruction of enterprises unable to sustain significant economies of scale and also, what is becoming more important economies of scope as we can see in the following section. that one has to consider that aredo not havejobs in the developed countries The new international context asks for a high level of competitively which relays most on innovation. However, innovation is not possible if wages, labour relations and the professional training are still pre-industrial.

That does not mean either, that the type of industrialisation followed by the developed world is the way developing countries have to follow. Empowering grass-roots organisations involved in small and medium scale production, trying to improve their productive capacity and their bargaining power in a sustainable perspective, at a national and international level, is going forward in warranting them more autonomy and liberty, giving them the possibility of be and do relaying on their human capacities.