The 17th of July 2014, ought to be a date remembered with infamy by Bolivia. On this day, the Bolivian congress reduced the legal working age to 10 years, effectively becoming the first country to legalize child labor. In an age when most countries are trying to diminish and eradicate child labor, this legislation stands out as a sore thumb in the face of economic progress & civic duty. It also requires rapid attention from the international community, in order to determine the reasons
behind this appalling decision, and how the future of Bolivian children can be saved from this travesty of economic failure.
The Bolivian government argues that it although reduced the legal working age to the age of 10, children can only work as long as they attend school and are self-employed. The law further goes on to permit 12-year-olds to be contracted to work for others. When we speak of social and economic reforms, this isn’t what we have in mind.
Bolivian officials claim this move will help reduce poverty levels in the country while aiding poor families who might otherwise not be able to survive. In our opinion, all this move does is portrait the Bolivian government’s failure to leverage on its strengths and create a more prosperous and robust economic and social set up. We thus endeavor to walk you through the brief history of Bolivian economy and then highlight areas for improvement so that the government is not obliged to stoop to the levels of child labor in order to ensure its citizen’s livelihood.
The economy as it stands
Landlocked by Brazil, Paraguay, Argentina, Chile and Peru; Bolivia is a country that has gone through a lot of economic turbulence over the years. Although the country has been relatively stable in the last decade, Bolivia still faces problems of high unemployment, drug trafficking, loose immigration laws, inequality in income distribution, lack of education & health care for its citizens.
The economy has predominantly been a single commodity trading one. The commodities traded over the years have included silver, tin, zinc, coffee, quinoa, soybean and most recently, natural gas.
The economy lacks diversity in its portfolio and hasn’t used its influx of FDI to develop capacity and infrastructure. It remains heavily reliant on foreign support and is thus not self-sustainable. Moreover, social and political disturbances have always been the backdrop of almost every economic initiative taken by the government, be it a positive or a debatable one. Loose legislation and improper government control in key areas such as immigration, border control and social welfare have promoted human slave trade, drug trafficking, money laundering and, of course, child labor.
The Bolivian economy has fought a tough battle against inflation and even hyperinflation not once but on multiple occasions in the last few decades. In 1985, Bolivia experienced an inflation of more than 20,000%. To tackle this horrific economic situation the government introduced various economic reforms, mostly focused around attracting foreign direct investment, since by itself the Bolivian economy barely produces much. The government started privatizing public sector enterprises and foreign investors were given preferential treatment and easy access to local resources, encouraging vast amount of FDI inflows ($ 10.56 Billion as of 31 December 2013).
The reforms did work on a broad level and the inflation levels gradually came down to as low as 4.9% in 2004. The government was also running a constant trade surplus, thanks to natural gas exports to Brazil, Argentina and the USA. Even the Bolivian Boliviano began to be valued as a stable currency, enjoying a comparable exchange rate close to that of the USD to EUR.
But however rosy the improved economic scenario sounds, the ground reality of the country did not change much. The poor remained poor, with the education system, public welfare, immigration laws, border control and income inequality remaining at the same levels as they were before the so called economic reform.
∇ X-M=Economic Imbalance + Social Difficulties
Currently, Bolivia exports goods and services worth $ 12 Billion (2013 est.), and imports goods and services worth $ 9 Billion (2013 est.). While the country imports petroleum products, aircrafts / aircraft parts, food and automobiles, a substantial portion of Bolivia’s exports is crude petroleum.
Bolivia’s weather and topography makes it hard to cultivate crops and thus importing is the only way to feed the country. Having accepted this reality, we find ourselves asking some begetting questions: Would it not be more prudent to retain the exports and develop the capacity to produce processed petroleum products, rather than exporting the raw material and buying back the refined form of it? By improving their manufacturing capability, wouldn’t the country be able to develop a self-sustaining economy?
Although the questions are simple, the responses are not. A plausible explanation to Bolivia’s skewed import portfolio is the lack of skilled labor. Developing manufacturing capabilities requires a good supply of skilled labor and the social difficulties highlighted above are hindering the creation of skilled labor. Some may think it is a vicious circle or a chicken and egg story: Does the economy create social imbalance, or does social imbalance create questionable economic policies? The answer though is stark- it is the economy that is creating the social imbalance.
An economy in need of rehabilitation
In pure financial terms, the economy is in good shape. However its structure does not allow for the development of capability in a bottom-up fashion. The Bolivian economy is predominantly based on agriculture and resource trading. The agricultural sector is mainly based on Cocoa, the raw material used to make Cocaine. Cocoa farming is another tricky question begging for an answer from the Bolivian Government. Unhindered cocaine farming leads to high volumes of cocaine production and illegal exports along with domestic consumption. All of which is unproductive apart from the fact that the farmers, who represent a healthy share of the population, manage to earn their living through it. Ban coco farming and a majority of population is out of work and food.
President Evo Morales came up with the policy of “Coca Yes, Cocaine No” to continue producing coca for other applications while banning the production of Cocaine. However, the cocaine trade does contribute to the Bolivian economy significantly. “Drugs, illegal as they may be, were 3% of the GDP, 18% of exports,” said Luis Quiroga, Bolivia’s vice president in 2000. “Bad as it was, damaging as it was, if you look at it from a purely business standpoint…It [the drug trade] was Milton Friedman heaven: all privately run, no taxation, no regulation and in essence — if you want to look at it cynically — duty free access to markets,” observes Quiroga.
Unsurprisingly the drug trade has had a negative impact of the economy. Apart from creating an improper income distribution and a GINI coefficient of 53, this situation is further complicated with the irregular population distribution of the country. 33%of the population is under the age of 14. With adolescents representing one-third of the population and with financial pressures on families, it becomes imperative for the children to drop out of school and work in order for the poor to survive.
The jobs performed by these children range from general unskilled labor, to dangerous work. Since working in the mines is more lucrative than any other job, a number of teenagers opt to work long hours in unsafe, poorly managed mines, risking their lives every day. Others who work in the city do not have lucrative options and hence favor the government’s latest bill as it does protect them from exploitation. Yet, their support stems from a survival point of view. This statement was best expressed by a teenage girl who works cleaning tombstones in a cemetery to support her family and pay for her schooling. When asked by a journalist “Does working at a cemetery make you think of death often?” she gracefully replied “No, I don’t think about death too often. I’m more afraid of life than death”.
However pressing and important it may be for children to work from the government’s perspective, the future does not look very bright for a country where children grow up dreading life more than death.
The future for these children becomes even more frightening. For a child who has been working since the age of 5 or 6, the prospects 20 or 30 years into the future, range from bleak to disastrous. An illiterate child will grow up to become an illiterate adult. Without the proper education and the skills, how can this adult compete in a globalized workplace? The government’s decision to legalize child labor is a short- term remedy to the economy. However the long term repercussions will be felt by these children well after the passing of Evo Morales.
Keeping up with the Joneses
During the early 18th Century, the Industrial Revolution employed a large number of children. With the development of these economies, prosperity and civic services advanced ensuring structural reforms in infrastructure, education and manufacturing. It was these changes that finally ensured the abolition of child labor.
This age old formula for growth can be used by Bolivia today. However in the 21st century, they need to be astute with these measures and tackle their socio- economic issues with a 2 pronged ideology:
- Create an economy by leveraging on their resources and by picking a lesson from its neighbors.
- Ensure that its future citizens are capable of competing in tomorrow’s knowledge economy.
Models of emulation:
In the early 1980’s, following the adoption of democracy and strict economic reforms, Brazil began leveraging on its vast natural resources to develop its economy. Bolivia could copy the same model, except this time, it fortunately does not need to destroy a rainforest to do so.
The global demand for lithium, the lightweight metal used to make high-powered batteries for cell phones, laptops, and hybrid cars, is expected to triple in the next 10 years. 50% to 70%of the world’s supply of this critical mineral is contained in just one place — Bolivia’s Uyuni salt flats.
It is estimated that the reserves of lithium in the salt flats might be close to a 100 million tons, making Bolivia the “Saudi Arabia of lithium.”
Although companies like Mitsubishi and LG have expressed interest in investing in the mining operation, the government is wary of foreign corporations and has thus far only accepted technical advice. Prudent as this is, Bolivia’s economy needs to open its borders to FDI if it is to truly capitalize on this opportunity. The resource wealth needs to be properly managed as demand will emerge for the scarce commodity. However till date, the government has only allocated $200 million to the development of this lucrative project.
This indicates that the primal changes that need to be made are with respect to the government’s mindset. The government’s current economic policies are strongly dependent on resources such as natural gas. By pegging their economy to natural resources, the country invariably absorbs the risk of the endless peak and recession cycles seen in the international prices of minerals and hydrocarbons.
This risk coupled with the lack of management knowledge has led to the creation of an ambience in which the state is resistant to developing their non-traditional production sector and instead gives greater emphasis to labor intensive jobs whilst abstaining from a policy of scientific innovation and technological development.
This archaic mentality was best portrayed in a survey conducted by Umbrales Del CIDES-UMSA. The researchers found that the market for Bolivian labor had stopped rewarding educational training since 2005. Men with higher levels of education had a loss of 13% their average real income between 2005 and 2011 while women had loss of a 5% in the same period. Thus when looked at from a comparative perspective, it seems the lower the educational level of a person, the greater the increase in compensation. With this trend in mind, the government’s decision to legalize child labor should hardly come as a surprise.
What Bolivia needs to propel, are economic policies that champion learning, education and innovation, in tandem with the proper capitalization of their natural resources. By focusing on outdated industrial economic policies, it seriously hampers its own future growth and robs its citizens of the motivation to learn the skill set of the future workplace.
Instead efforts should be made by the government to capitalize on their natural resources whilst avoiding the ‘resource curse’, which often plagues underdeveloped resource-rich countries. This is a matter of pivotal importance for the government if it wishes to hedge its economy from the high volatility of commodity prices and economic underperformance. The negotiation of contracts with foreign companies and investors needs to take into consideration the company’s contribution to local economic development, job creation and community benefits, and the country’s contribution towards safeguarding the investments of the company. The recent failure of Jindal’s integrated mining and steel project in Bolivia due to the country’s domestic politics evidently shows this is not the case today.
To change its outlook on reform, the country only needs to look at its next door neighbor, Chile. The Chilean Government has recently started an initiative, known as Start-up Chile, to attract world-class early stage entrepreneurs from anywhere in the world to start their business in Chile. The Bolivian government could take steps to play a participatory role in such projects. By opening up their borders and inviting innovative entrepreneurs, the government could use their natural resources to pioneer projects in green energy and technological ingenuity, by asking entrepreneurs to find innovative, low cost solutions to their problematic industries. By doing so, not only is there a transfer of knowledge, but also the possibility of increased income from tourism.
Both Brazil and Chile have successfully realized the development of their countries by these measures. It is only with steps in this direction that the Bolivian government can hope to become an element of change within its borders.
A deplorable legacy
Bolivia seriously needs to reconsider its economic policies, especially with respect to opening up its economy. As developing and developed nations move increasingly towards knowledge based economies, Bolivia needs to reconsider the future it is creating for its children today. Education and the transfer of knowledge needs to play a pivotal role in every economic policy, for without the necessary tools to function in these knowledge economies, the government is preparing a self-demolishing recipe with poverty, civil unrest, and deplorable conditions for children as the ingredients.
Without these initiatives, the future for the children of Bolivia will be a sad and bleak one…
Co-author: Abhijit Tripathi