43 Peru
Reinert
Looking at the example of Peru since 1950, waves of industrialization and deindustrialization have been associated with fl uctuations in living stand- ards. Th e standard of living of the population has been inversely related to the weight of the primary sector in the total economy. During the period 1950–1997, a one percentage point decrease in manufacturing as a share of GDP led to a fall in white-collar wages by 5.4 per cent, and a fall in blue- collar wages by 7.5 per cent. Conversely, when manufacturing increased by one percentage point in total GDP, white-collar and blue-collar real wages increased by 10.6 and 15.5 per cent respectively (Roca and Simabuko 2004). Going back to Carey’s map, we can conclude that every time manufacturing increased as a percentage of GDP, this corresponding to ‘moving east’ on the Carey map: wages went up. Every time the manufacturing sector shrank, it corresponded to ‘moving west’ on the Carey map: wages went down. Figure 1.4 shows how real wages in Peru peaked in the mid-1970s when the country did everything ‘wrong’ according to the Washington Consensus. Peruvian industry was kept up by high tariff s and represented a ‘bad’ form of protection. Industrialization was ‘artifi cial’, but the wages, roads, schools and hospitals created by this industrialization were all real. It is also impor- tant to see how exports took off and made the country look very successful while real wages were plummeting at the same time. Th e Washington Con- sensus shock therapy hit Peru on two fronts simultaneously—with deindus- trialization plus downsizing the public sector. By killing off the two sectors with strong union power—one private, one public—the whole national wage level collapsed. Th is was accompanied by a rapid fall in the terms of trade.
Peruvian wage levels fell much faster than GDP, as the composition of Peru- vian GDP changed. Figure 1.5 shows how dramatic this change was. At the height of industrialization in Peru in 1972, wages amounted to 51.2 per cent of GDP and the income of the self-employed was 26.5 per cent, a total of 77.7 per cent of GDP. Figure 1.5 shows how wages, salaries and the income of the self- employed shrank rapidly as the country prematurely opened up to free trade. In 1990, the last year the Peruvian central bank provided a breakdown of GDP in this way, the share of wages in GDP had been almost halved to 26.5 per cent, and the share of the income of the self-employed had fallen to 15.9 per cent. In total, the wages, salaries and the income of the self-employed as a share of GDP had shrunk by 45 per cent—from 77.7 to 42.4 per cent of GDP—as a result of Washington Consensus policies from the mid-1970s to 1990. Th e ‘national industrial rent’ had been destroyed, with devastating consequences for real wages that had been more than halved in real terms.