COSTA RICA
An end to the welfare state?
María Flórez-Estrada

The gap between rich and poor widens alongside the country’s changing economic model.

Costa Rica, dubbed the "Switzerland of Central America" for its high living standards, is becoming less Swiss and more Central American every day. Even though on a global scale Costa Rica is still considered to have a "high human development" level, it has become clear for Costa Ricans that their country is changing deeply, and not necessarily for the better.

For the third consecutive year, Costa Rica dropped on the 2005 Development Index by the United Nations Development Program, which measures life expectancy, literacy rates, enrollment rates in primary and secondary schools and higher education institutions, and the gross domestic product (GDP) per capita.

The Index ranked Costa Rica at 42 in 2003, 45 in 2004 and 47 in the most recent listings, fourth place in Latin America behind Argentina (34), Chile (37) and Uruguay (46).

In this small, lush country of just over 3 million people, social inequality is threatening to become rampant. The Gini coefficient, used to measure income distribution, notes that in 1990 was 0.370, rising to 0.425 in 2004.

"Social inequality has increased and there are growing indexes of social violence," says University of Costa Rica sociologist Ciska Raventós. "Important mechanisms for the creation of opportunities and social integration such as universal health care and education policies have deteriorated, and at the same time salaries have dropped," she said.

According to Raventós, this has led to an increase in crime, including homicide and domestic violence.

For Costa Rica, as for the rest of Latin America, the decline began in the 1980s when the country was bound by external debt and inflation. External funding for the public sector was put to an end by a set of policies known as the "Washington Consensus" that brought with them pressure for the country to adopt a new economic model, characterized by increased trade, deregulation of financial institutions, and the workforce, and sweeping privatization.

"The anti-state nature of the adjustment policies, which were applied more than a quarter century ago, and a reduction in public incomes, especially in the Central Government, have weakened the state’s ability to do its job," says Raventós.

Between 1956 and 1979, Costa Rica enjoyed significant social and economic development spurred along by a welfare and entrepreneurial state that installed social security, universal health care, and extended electricity and telecommunications to every part of the country. Public investment in education nearly doubled, totaling nearly 6 percent of the GDP in 1979. Nevertheless, with the crisis and structural overhaul of the 1980s, education spending fell to just 4 percent in 1988.

"The extraordinary importance of education to overcome poverty and improve production capacities contrasts with the widespread decline of the education system and the general schooling levels, which are insufficient to confront the challenges we face today," says economist Miguel Gutiérrez, coordinator of the Project State of the Nation in Sustainable Human Development.

In a country where free and universal education was the precious vehicle that guaranteed the Costa Rican population the possibility of improving their living conditions, this situation has led to the stagnation and even the reversion of coverage and retention of students, and the significant deterioration of the public education infrastructure.

And, even though in 2003 the Costa Rican government invested approximately 6 percent of the GDP in public education — as is stated in the Constitution — matriculation levels in all three levels of education reached only 68 percent of youths, due to the drop in income levels in poor homes and middle-class households.

In 2004 the minimum wage dropped to the 1997 level. Real income — not taking inflation into account — of the formal workforce dropped between 3 and 5 percent, and 11 percent among unsalaried, mainly informal, workers.

Costa Rican analysts agree that "the good" that the new model brought is a greater diversity of exports, which was once heavily concentrated in such agricultural products as coffee and bananas. In 2004 exports brought in a record US$8.5 billion.

"The growth model the country followed for 25 years has been successful in terms of expansion and economic diversification, but it has not generated a parallel increase in social welfare," says Raventós.

The primary characteristic of the current model, according to analysts, is that with the exception of tourism, the main source of income, Costa Rica’s most economically dynamic sectors, located in duty-free zones, have no links with the rest of the economy nor are they contributing with taxes to the Costa Rican great welfare state.