Latin America, The Search For Good Jobs

For years Venancio Andrade eked out a meager living selling pots and pans on the dusty streets of Lima and neighboring towns. He eventually taught himself how to make aluminum kitchen supplies, and in 1985 he scraped together enough money to buy a parcel of land in a barren industrial park on the outskirts of the Peruvian capital. His ownership of property qualified Andrade for bank loans that helped his cooking-utensils company grow, and he now heads the business association of Villa El Salvador, a sprawling shantytown of 400,000 that sprang up on the edges of the industrial park. The 62-year-old Andrade has five full-time employees on his payroll, and during peak production periods employs as many as 30 people. By his own reckoning, it was the acquisition of formal property titles that made him and other small businessmen in Villa El Salvador viable clients in the eyes of prospective lenders. "Credit has allowed me to meet rising demand for my products when I need to produce more," explains Andrade.

In Latin America, Andrade's modest company qualifies as a success story. But it's still very much a rarity in a region where growth companies--and the good jobs that go with them--are very hard to find. According to Juan Somavia, the Chilean head of the International Labor Organization, some 100 million people (or 57 percent of Latin America's active, urban population) have "either no work at all, or work that cannot be considered decent." More than eight of every 10 new jobs created in the region since 1990 are in the so-called informal economy--a vast, extralegal sector that encompasses the self-employed, street vendors and tiny shops that aren't registered to do business and mostly don't pay taxes. Across the board, the formal sectors of Latin American economies have been unable to generate enough traditional salaried jobs with health insurance and other benefits to keep pace with the expanding pools of available workers.

With urban unemployment hovering at 11 percent--its highest level in 30 years--tens of millions of Latin Americans must make ends meet any way they can by driving taxis, toiling in unlicensed sweatshops or selling pirated compact discs on city sidewalks. That is true even in Chile, South America's most stable and successful economy, where over the past three years, up to 90 percent of all new jobs have originated in the informal sector. The role of the informal sector is all the more crucial in neighboring Peru, where experts say the economy would have to grow by at least 7 percent each year to accommodate the demand for jobs.

What are the reasons for the job crisis? Years of corruption and economic mismanagement are two of them. For example, when Venezuela's President Hugo Chavez was elected in 1999, unemployment was already an abominable 13 percent. Four years of his unpopular economic policies and a deepening joust with political opponents have driven that figure up to 20 percent. --Venezuela's informal sector now accounts for more than half the work force in an oil-rich country that once boasted Latin America's highest per capita gross domestic product. But larger forces, often beyond the control of governments, may be even bigger contributors to the region's continuing dependence on the precarious informal sector.

During the 1990s neoliberal market reform programs sponsored by the International Monetary Fund to help combat the crushing foreign debt in countries like Argentina swelled the ranks of the jobless as government budgets were slashed, public enterprises were sold off and thousands of privately owned domestic companies were driven out of business by the onslaught of cheap imports. "The structural-adjustment era has not been a successful period anyplace for the IMF and the World Bank," says Columbia University development economist Jeffrey Sachs. "Their advice has been too simplistic [and] they share some responsibility." Latin America's chronic reliance on raw-material exports, and its inability to create new industries, also remain problems. More than 70 percent of the region's exports are primary or partially processed natural-resource products like minerals, fish, wood and fruit. Volatile world market prices are at historic lows for some of these commodities, such as coffee. What's more, a disproportionate share of the foreign investment coming into Latin America goes into capital-intensive extractive industries--such as mining, natural gas and oil--that generate relatively few jobs. There is little investment in value-added industries like manufacturing and information technology.

But among the sea of desperate jobless are some potential small businesses that just might have the right stuff to make it. And a growing number of experts believe that governments in the region should be doing more to help such businesses make the move into the formal sector. "Peru's best chance for meeting its job needs is to capitalize on the entrepreneurial energy of our informal majority," says former Labor minister Fernando Villaran. "We need to create more links between them and our formal businesses."

One way to boost such aspiring small businesses has been championed by Hernando de Soto, a policy consultant to the governments of Mexico, Egypt and Haiti who helped set up a pioneer land-title program in the early 1990s. De Soto's proposal is a deceptively simple one: cut the bureaucratic red tape that impedes neighborhood entrepreneurs from becoming more-productive businessmen. De Soto would grant property titles to impoverished squatters living on land that, in the case of his native Peru, has an estimated value of $90 billion. Armed with such deeds, informal businesses could gain easier access to the loans needed to purchase new equipment and fuel growth. "All countries that have had economic success got there by first overhauling their legal systems," says de Soto.

A recently published World Bank study lends credence to de Soto's arguments. Titled "Doing Business," the report concluded that poor countries tend to impose more onerous requirements on would-be entrepreneurs than do rich nations. In El Salvador, an aspiring entrepreneur must comply with a dozen bureaucratic formali--ties stipulated by law. It takes, on average, 115 days to open a new business. By contrast, the corresponding figures for the United States are four days and five procedures. It once took a Peruvian as long as 15 years to acquire a property title. Now, thanks in part to the program established by de Soto, the process has been shortened to a mere two months. With the help of the World Bank, the Peruvian government has issued 1.4 million property deeds since 1998 that have benefited at least 6 million people. Many of those who have received deeds have qualified for personal bank loans they would not otherwise have gotten. "It was possible to get small credits before this," says Felipe Morris, coordinator of the World Bank's urban-property-rights project in Lima. "But with titles, the banks feel more confident and willing to provide credit."

Doling out land titles and microenterprise loans are no panacea for Latin America's assorted economic woes. For every entrepreneur in the informal sector who makes a go of it, experts say that nine will fail on account of stiff competition or insufficient business training. And at the end of the day, many if not most of the taxi drivers, street vendors and freelance carpenters scrambling for piecemeal work would infinitely prefer a stable, decent-paying job with a reasonable benefits package. "Not everyone is just waiting to be an entrepreneur if they get their property legalized," cautions Martin Scurrah, director of the South American office of Oxfam America. "Most people are working in the informal sector not by choice, but by necessity." What's really needed are jobs that get people out of Latin America's shanties, not ones that leave them there.