Determinants of Social Spending inLatin America: Globalization, Political Institutions, and LaborMarket.

Why have most of the governments in Latin America increased social spending in the 1990s despite a weakening of organized labor under globalization? I argue that the increase in social spending in Latin American countries is explained by policy makers’ desire to achieve the simultaneous goals of economic growth and social equity under globalization. The current dominant literature on comparative political economy in the OECD countries claims that leftist governments linked to a strong labor power are more likely to expand social spending in order to compensate the “new political constituencies,” who are supposed to be adversely affected by globalization. Unlike in the advanced industrial economies, however, such leftist power does not seem to explain the change in social spending in Latin America. More specifically, globalization contributes to an expansion of the informal sector and the consequent de-alignment of traditional left-labor alliance. In this context, a more plausible explanation is that the policy makers, regardless of partisanship, are more inclined to increase social spending, particularly human capital expenditures, to improve the skill level of labor force aiming at enhancing economic efficiency. Using a time-series cross-sectional panel data set for 13 Latin American countries from 1980 to 1997, this study presents the following findings. First, globalization measured as trade openness and capital account liberalization does affect the change in social spending. Second, the spending increase attributable to enhancing human capital expenditures is not aimed at compensating the expanding informal sector, which is supposed to exert electoral pressure as the “new political constituencies.” Instead, it reflects the policy makers’ economic concern for achieving both economic growth and social equity, which have been considered an unsolvable trade-off in the region. Third, partisan politics matters less than in the advanced industrial countries. Taken together, these findings demonstrate that economic rather than political logic works behind the increase in social spending in Latin American countries under globalization. [ABSTRACT FROM AUTHOR]