Role of the State

Background

The role of the state in leading hemispheric economic integration is irreplaceable if this process is to promote social justice, equity among regions and social groups, and sustainability. The democratic state should be a tool for society to use to address the economic and social problems the market cannot solve. Hence, this discussion should not be framed in terms of a polarization between state and market.

Historical experience shows that the state is necessary to deal with the flux of the market. Furthermore the economy is broader than the market, encompassing all production (not just what is traded), and requires the involvement of the state to establish adequate conditions for stable, sustainable growth and social well being. Opening up economies internationally does not necessarily mean they have to be left to the vagaries of international markets. There is no such thing as the free market, because of the large corporations which dominate and drive the market. Opening markets actually means letting these corporations drive and dominate the market to suit their own interests. Historically, there is no evidence that the market can achieve general equilibrium within the economy, let alone sustainability and social justice.

The key is for nations to open themselves to the world based on their own plans for fair and sustainable development led by democratic governments, rather than leaving the future of such development to market forces. Economies that are open are all the more reliant on regulation at the national and international levels, and require a state strong enough to promote and enforce them.

Under the prevailing dominant economic model, state intervention in the economy is reduced, except in the promotion of the export sector and finance capital. By favouring exports, workers and most of the population cease to be seen as valued consumers, since their impoverishment no longer affects the top strata of capital.

The dominant discourse demonizes government and assumes that the market does everything better. Adjustment programs imposed by the World Bank and the IMF increase this pressure, leading to a growing trend toward privatization. Governments see privatization as a short-term remedy for financial crisis and unbalanced budgets. It can also be a mechanism for the illegal transfer of wealth or favouritism toward certain economic interests.

There are three problems inherent in privatization: 1) it reduces the state's ability to lead the process of sustainable and fair development; 2) over the long term, government revenues fall, which normally results in reductions in public spending; and 3) serious injustices are created in public services, with a disproportionate burden of such cuts affecting women and people who are poor. Privatization is also used to lower wages and benefits for organized workers, as the sale of services usually results in the replacement of collective agreements by more "flexible" working conditions entailing fewer rights, less negotiating power, and lower benefits.

We propose a fully democratic state, economically and socially accountable to its citizens, which radically challenges corruption at every level; a state with a qualitatively new role within the economy. We are not proposing an oversized state burdened by huge, inefficient enterprises. The number and size of public corporations is less important than the role they fulfill. Society, not only governments, should make decisions relating to industries in the public realm.

The goal should not be traditional protectionism, but building a state accountable to society that can implement a democratically established national development plan. This may involve the protection of certain sectors considered strategic within a country's plan, but more importantly, it means promoting forward-looking development. Regulation does not imply inhibiting private initiative. On the contrary, it means establishing clear rules balancing rights and obligations, and ensuring that both national and international capital promote a country's fair and sustainable development. This renewed role for the state implies international regulations which must be determined democratically and through consultation with citizens. Sovereignty belongs to the people, who may decide to submit to international regulations if it is in the collective interest.

Sovereignty belongs to the people, who may decide to submit to international regulations if it is in the collective interest. International regulations are becoming increasingly necessary in the face of the supra-national power of certain corporations which operate within our economies and the weight and mobility of footloose capital.

This new and strategic role for the state in the economic and social spheres requires integrated fiscal reform favouring economic activity and redistribution, coupled with the ability to raise revenue at a level which avoids deficits so large that they impede development.

Nothing in an international agreement should constitute a renunciation or reduction of the state's ability to meet the economic and social demands of its citizens. This principle must take precedence if the state's capacity to meet these demands is diminished by such agreements.

Guiding Principles:

1. Economic and Social Responsibilities of the State

• The first role of the state is to facilitate debate and establish permanent consultation mechanisms with respect to domestic and international policies.
  
  
• It is the state's responsibility to lead a consensual economic strategy and enact related social policies which strengthen the well-being of citizens. The state should spare no effort to promote the creation of well-paid jobs, which are the best vehicle for achieving that well-being.
  
  

Participation in the global economy entails a strong export sector, but this should not be pursued to the neglect of the domestic market. The strength of the export market should be measured not in the volume of exports, but in the sector's ability to generate high-quality jobs and foster economic growth. The focus on strengthening the domestic market would mean that citizens would be viewed as valued consumers. Thus, raising standards of living would become an economic necessity for market expansion rather than merely a social justice issue.

Competition punishes corporations with low levels of productivity, but it does not necessarily increase productivity. The state has the inescapable responsibility to create conditions which favour competition among domestic companies in the international as well as internal markets. To achieve this, the promotion of technological research and development, as well as education, is indispensable to each country's viability. An explicit industrial policy must be established which includes building infrastructure, access to credit, education and research for the promotion of appropriate technology and integration of productive linkages.

• The social role of the state is a democratic requirement of society and cannot be evaded. However, the economic role cannot be separated from the social role. There is no better social policy than an economic policy that favours the well-being of all men, women, and children. However, even the best political policies must be supplemented by social policies, since the market always generates inequities.

The social role of the state entails public services, public security, and the well-being of all. This requires specific policies aimed at each of the most vulnerable sectors of the population. These policies should be translated into laws which create rights, not policies of patronage or favouritism. The state's core aim should be just and sustainable development for all, while not excluding emergency or compensatory aid for particular groups.

Education

• States should fully take up their responsibilities for financing education, for sharing resources equitably and for the establishment of a common basic curriculum. However, decentralization necessary for the autonomy of educational programs in specific communities should not lead states to abandon their responsibility for the cost of education and the equitable distribution of resources. Access to education is a right which should not be subject to the ability to pay.

Improving the quality of education and access to it requires new sources of funding. Part of tax revenues accruing from international financial transactions should be allocated to increased investment in education in countries with the smallest budgets (see Chapter 10). In all countries of the Americas, education should favour a holistic approach. Educational systems should therefore do a better job of balancing utilitarian visions of education to meet the market's needs and humanistic approaches that allow individuals to participate actively and fully in the societies in which they live.

Priority should be given to literacy and basic education for all. Access to secondary and post-secondary education should be improved to allow all societies of the Americas to participate fully in the "globalization of knowledge" without this resulting in a homogenization of this knowledge. The use of new technologies should favor the access to knowledge and allow for the circulation of the diverse forms of knowledge in all cultural communities. New technologies such as computers should be used in schools, but not as a substitute for teachers. New information and communication technologies must not be converted into yet more tools of exclusion and discrimination.

Any education action plan must contain measures directed toward improving the living standards for children and youth within the family. Especially important are education and mass campaigns to help children avoid drugs. Financial, psycho-social, and public health service supports are necessary. Adult education must not be neglected.

Health

• As with education, access to health is a fundamental right which should not be subject to the ability to pay. It should be considered the responsibility of the state to provide high quality health care to all. Specific international funds should be set aside for this purpose, including a portion of revenues accruing from speculative financial transactions in the international sphere (see Chapter 10)

Access to health care services should be universal and not limited to those with jobs in the formal sector, since in most countries in the Americas, the majority of people experience unemployment, often turning to precarious employment in the informal sector. Health services should include those specially related to women and be designed with concern for women's access to such services.

Access to public health care services for indigenous communities and peoples should be guaranteed. At the same time, they should be based on the development and increased availability of traditional medicine and the age-old knowledge held in these communities, often by women. Social security systems (including pensions) should be under the state's jurisdiction, and the savings funds used to finance them should be managed by the state and invested in high-priority national development projects. The funds should not be used as speculative capital, which would only serve to concentrate social wealth in a few hands.

2. Criteria for Economic Regulation

Regulations must:

• be clear and explicit and designed to prevent bias on the part of officials whose job it is to apply them
  
  
• be decided democratically
  
  
• be simple and easy to apply
  
  
• be kept to the minimum needed to achieve their objectives
  
  
• preserve the sovereignty of provinces, regions or states to make their own regulations within their areas of competence as long as they act for the good of their communities and not to perpetuate individual privilege, or gender- or race-based discrimination.

Areas for Special Regulation

Each country may establish special regulations for sectors it deems to be especially important for its national development, such as the following:

• The exploitation of natural resources.
  
  
• Financial and monetary policy, especially the management of its payment system and short-term investment.
  
  
• Basic food production and/or agricultural production by small family farms.
  
  
• Strategic sectors linked to national sovereignty or national economic stability.

The intention should not be to protect or block certain sectors from foreign investment or external trade, but to recognize those sectors that need special regulation.

3. Public Sector Corporations

Corporations known as "state-owned enterprises" in fact belong to society and are only administered by the state. These public sector corporations are not established for personal profit, but are vehicles for healthy economic development, safeguards of sovereignty, and instruments of social and environmental justice.

Nevertheless, states should ensure that public sector corporations are sound and efficient. Corruption should be avoided by legislative and societal checks. Their preservation, creation or privatization should be decided by legislatures representing the popular will. In the case of strategic enterprises, laws should require broad and direct consultation with the public.

General provisions:

• Some public sector corporations may exercise exclusive management, production, transportation or sales rights over specific goods and services where national laws so provide.
  
  
• Public sector corporations should not be treated as monopolies or subject to anti-monopoly laws.
  
  
• The administration and evaluation of public sector corporations should not be based solely on considerations of price and quality, but also on their achievement of the specific objectives for which they were created.

4. Government Procurement and Public Works Contracts

Government purchasing and public works contracts have a significant influence in some productive sectors. They are carried out with taxpayers' money and should therefore continue to be instruments of economic policy for national development. They should accordingly be subject to the following criteria:

Government procurement of goods and services should be subject to open and transparent competition to avoid corrupt practices in their allocation, with specific exceptions discussed below. Criteria for competition need not be based exclusively on price and quality, but may also include the following:

• National content for the good or service involving some degree of integration into the domestic productive economy.
  
  
• Kinds of technology used and their environmental effects.
  
  
• Transfer of technology.
  
  
• Number of jobs created and wages paid.
  
  
• Special safeguards to support medium, small and micro domestic enterprises.
  
  
• Prohibition against conditions requiring the letting of a contract for purchase or a public project to a particular supplier or contractor

Countries may establish lists of high-priority suppliers whose development they consider strategic for reasons of national development (such as the development of appropriate technology, spin-off effects on other economic sectors or the number of jobs they generate or on the achievement of gender or racial equity) and give them priority over foreing suppliers. To ensure that the priority given to nationals does not protect inefficiencies or place an excessive burden on public resources, suppliers should be required to offer bids within a certain percentage of competing foreign bids, comply with other criteria of the tendering process, and receive privileged status for a limited time. These preferential terms will be negotiated in conjunction with the supports necessary to bring the domestic suppliers up to the international competitive standard within a set timeframe. Government procurement should also be used to protect and benefit groups affected by discrimination and marginalization, such as certain ethnic groups, cooperatives, or producers in particularly depressed regions or those with high levels of extreme poverty.

Disputes over government procurement should be based explicitly on the above criteria, and be dealt with first by mechanisms within a country, and proceed only to international arbitration after recourse to national processes has been exhausted.

Foreign Investment