How rejecting neoliberalism rescued Bolivia's economy

August 9, 2015

CONALCAM brings Bolivia’s main indigenous and popular organisations together with state representatives to coordinate and debate economic policies.

The small Andean nation of Bolivia has received praise from many quarters due to the economic transformation it has undergone over the past decade.

Curiosity regarding this conversion from “economic basket case” to the fastest growing economy in the region has been heightened by the fact it occurred under left-wing president Evo Morales. Understanding how the Morales’ government achieved this transformation is of great interest for those seeking an alternative to crisis-ridden neoliberalism.

Before Morales’ election in December 2005, Bolivians suffered through 20 years of neoliberalism. Successive right-wing governments privatised state-owned companies and handed over control of important chunks of the state to international financial institutions.

As public revenue shrank, the country entered a vicious cycle of deficits and debt. Each new budget required further international loans that were always accompanied by greater restrictive conditions. International loans and aid ended up covering about half of Bolivia’s public investment.

However, since electing their first indigenous president in a nation with a majority of previously excluded indigenous peoples, Bolivians have experienced economic growth rates higher than any period during the past three and a half decades.

At the same time, inequality has been greatly lessened and public debt brought under control. These successes are the result of the government’s overall strategy of focusing on recovering sovereignty over the economy and state.


When Morales was sworn into office in January 2006, he said: “After hearing the reports from the transition commissions, I have seen how the state does not control the state and its institutions. There is a total dependency.”

He described Bolivia as “a transnationalised country” and noted that, under the pretext of “capitalisation” — a euphemism for privatisation — “the country has been decapitalised”.

Morales said, therefore, Bolivia needed “to nationalise our natural resources and put in process a new economic model”.

This new model, known as the “New Economic, Social, Communitarian and Productive Model”, has sought to roll back neoliberalism by:

• Reasserting state sovereignty over the economy, particularly Bolivia’s natural resources;

• Breaking out of Bolivia’s traditional position as an exporter of primary materials by industrialising these resources;

• Promoting productive sectors such as manufacturing and agriculture;

• Redistributing the nation’s wealth to tackle poverty; and

• Strengthening the organisational capacity of working class and campesino (peasant) forces as the two essential pillars of the transition to socialism in Bolivia.

According to the minster of the economy Luis Arce Catacora, this economic model rests on two pillars: strategic sectors, such as hydrocarbons and mining, which generate rent; and productive sectors, such as manufacturing, tourism, housing and agriculture, which generate profits and jobs.

To break the economy’s dependency on raw material exports, the government has begun using rent generated in the strategic sector to industrialise natural resources and promote productive sectors, with an emphasis on collective, cooperative, and family-based enterprises.

A key plank of the new economic model was the May 2006 nationalisation of the hydrocarbon sector. Before nationalisation, transnational capital claimed 82% of the wealth generated by gas royalties. Under the new system, the state keeps about 80% of gas rent.

This means the total amount of gas revenue received by the Bolivian government during Morales’s first six years was about seven times greater than that obtained during the previous five years.

Revenue collection is set to rise further as Bolivia starts to export value-added processed gas as a result of its industrialisation program.

The Morales government has also carried out nationalisations in other strategic sectors such as mining, telecommunications and electricity. Taken as a whole, these nationalisations have enabled the state to become the largest player in the economy.

Unlike transnational capital, whose sole motivation is profits, the state has directed its economic activities towards ensuring Bolivians have greater access to basic services.

Within the first five years of the Morales government, the number of households with gas connections had risen by 835%. The percentage of rural households with access to electricity jumped from 20% to 50% and the number of municipalities with telecommunications coverage has gone from 110 to 324 out of 339.

Bolivians have also benefited increased spending on health and education, the introduction of social security benefits, wage rises and price controls on staple foods.

These pro-poor policies have helped push a surge in internal demand. This has been the real driving force in Bolivia’s spectacular economic growth. External demand — hit by the global economic crisis — had a negative impact on growth. But internal demand rose at an average 5.2% a year between 2006 and 2012.

State redistribution of funds has also helped fuel a dramatic rise in the number of registered enterprises - from less than 20,000 in 2005 to more 96,000 by mid-2013. This in turn has created jobs, leading to a big fall in unemployment.

To help foster the “communitarian” (collectively run) sector, the government has experimented with small state-owned enterprises in food processing, gold and cardboard production. The plan is to hand these companies over to local communities to run.

Furthermore, more than 20 million hectares of land have been handed over to campesino communities as communitarian property or placed under the direct control of the land's indigenous owners. Small agricultural producers now have preferential access to equipment, supplies, no-interest loans and state-subsidised markets.

Refounding the state

These economic advances have been accompanied by changes in the political arena aiming to empower Bolivia’s indigenous and popular classes.

The Morales government continues to function within the framework of deeply entrenched capitalist culture and social relations. But it has been able to use the increased revenue from gas nationalisation to break its dependency on international funding and begin “nationalising” the state.

As taxes and royalties collected by the state went from 28% of GDP in 2004 to 45% in 2010, public debt dropped from 90% of GDP in 2003 to 31.5% in 2012.

This strong economic position has allowed the government to dictate its own domestic and foreign policy, free from impositions set by international financial institutions.

Today, it is not US or International Monetary Fund officials who develop government policies; instead, Bolivia’s social movements play this role. To facilitate this process, the government initiated the National Coalition for Change (CONALCAM) in 2007.

CONALCAM brings together Bolivia’s main indigenous and popular organisations with state representatives to coordinate and debate strategies.

When debates between the government and its social base have spilled out onto the street, the government sought dialogue and consensus. It has retreated where necessary, but always tried to continue to drive the process forward.

The most important step taken by the Morales government in the political sphere was convening an elected Constituent Assembly. Established to rewrite Bolivia’s constitution, the assembly's goal was to create a new “plurinational” state that finally recognised the previously excluded indigenous “nations” and provided them with a legal framework to help advance their demands.

Bolivia’s traditional capitalist elites tried to block the changes pushed by the Constituent Assembly. Their opposition to the threat to their interests from a new constitution triggered their unsuccessful September 2008 coup attempt.

The profound nature of the class mobilisations during this period, combined with the Morales government's ability to expand and unite its support base among the indigenous working classes, the military and internationally, was the key factor in its ability to crush the right-wing revolt.

Notwithstanding some important weaknesses, the final version of the constitution approved at the end of 2008 is generally viewed as a significant achievement of the social movements. It satisfies three key social movement demands: plurinationalism, indigenous autonomy and popular control over natural resources.

The new constitution has facilitated the process of “decolonising” the state. For example, it paved the way for Bolivia’s first popular elections to elect judicial authorities.

After the October 2010 elections, a record number of women (50%) and indigenous people (40%) flooded into a judiciary, whose membership was previously restricted to those with connections to the traditional ruling parties of the old elite.

'Govern by obeying'

The Morales government has showed that an alternative to neoliberalism is possible. At the heart of this alternative has been the recovery of popular control over the state and economy. The results are plain to see.
None of this has been easy: the government has had to face down a right-wing revolt that threatened to become a military coup. It also had to deal with an inherited capitalist state apparatus that is largely ill-equipped to implement progressive reforms.

Finally, it has faced protests from among its own supporters who have mobilised to raise their particular sectoral demands.

Despite this, 10 years on, the Morales government maintains the support of most Bolivians. This has been possible because the majority agree with their government’s strategy and because Morales has remained true to his word of “governing by obeying” the people.

Those seeking lessons from Bolivia’s example should also learn from this approach to governing.

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